Social Trading, a New Attractive Investment Opportunity or an Unforeseeable Risk? A Qualitative Analysis of the Social Trading Market and a Quantitative Evaluation of the Performance

Michael Haber

Student thesis: Master thesis

Abstract

Social trading is currently growing in popularity in the FinTech sector. The idea of collaboratively made investment decisions is not new. Changed customer preferences and technological developments offer new opportunities. This thesis analyzes the concept of social trading from a qualitative and quantitative perspective with the goal to evaluate and critically reflect on risk and success potentials. The work is structured in three parts: a qualitative analysis of the social trading market, a theoretical representation of the concept of social trading, and a quantitative evaluation of the performance of social trading portfolios. On the market for social trading, a variety of companies that so far have no dominating business model can be identified. It should be emphasized that the current way of operationalizing social trading can create high risks for investors. The theoretical analysis highlights the potential of social trading to increase the transparency of the investment process and to reduce informational asymmetries between investors and portfolio managers. At the same time, the utilization of collective intelligence offers the chance to create informational advantages for investors. The quantitative analysis of a sample of social trading portfolios retrieved from wikifolio suggests that social trading has the potential to generate abnormal returns.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2017
Number of pages119