Does social communication make investors stay in the market?

Abstract

Abstract The role of online discussions in rallying investors has been highlighted by the GameStop frenzy of 2021. We know little, however, about the effect of online discussions on investor survivorship. Previous studies have emphasized the role of communication with respect to market entry, but not with respect to market survival. Survivorship studies, in turn, have largely focused on the role of financial factors in the investors’ decision to quit trading, but have not investigated so far how social interactions and communication impact the decision to quit or stay. Using a dataset covering 1.1 million observations for 4,731 traders over 18 months, we examine the role of online discussions in traders’ decisions to stay in the market. We find that traders who actively engage in them tend to be 16 per cent to 30 per cent less likely to quit trading. We identify a positive Granger-causal relationship between online discussions and the probability of survival. Our results are robust to alternative measures of communication and different sets of control variables. Based on this evidence, we draw attention to the necessity of studying the nexus between finance and social media as an important component of platform capitalism.