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Journal of Social Computing 2022, 3(3): 231-249 https://doi.org/10.23919/JSC.2022.0007
Open Access | Issue | Published: 30 September 2022

Investors’ Social Network and Return

Show Author's Information Yu He1,3( ),  Rong Lu1,  Xiao Han2
Department of Finance, Shanghai University of Finance and Economics, Shanghai 200433, China
Department of Investment, Zhejiang University of Finance and Economics, Hangzhou 310018, China
School of Information Management & Engineering, Shanghai University of Finance and Economics, Shanghai 200433, China
Keywords:
social networks, information diffusion, investor networks, investors’ return, asset pricing
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He Y, Lu R, Han X. Investors’ Social Network and Return. Journal of Social Computing, 2022, 3(3): 231-249. https://doi.org/10.23919/JSC.2022.0007
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Abstract Full text About this article

Restricted by the availability of investors’ account data, existing studies know little about the reasons for differences in investors’ return in financial markets. Given this, this paper, based on the unique account data, reveals that the differences in investors’ return are correlated to their locations in the social network. Conclusions are as follows. (1) Investors’ social network constructed based on the submission time of completed orders describes the information diffusion process of financial markets. Information diffuses from the center of the network to the edge, and investors’ return depends on their position in the network. (2) Investors’ social network affects their return through the positive spillover mechanism of their behavior. Wealthy investors are in the center of the social network, the stronger the information sharing, the higher the status in the network, the higher the return; while retail investors are on the edge of the social network, and when their network centrality is certain, they even suffer return penalty for information sharing. (3) The speed of information diffusion in investors’ social network has an important impact on asset pricing. Stocks’ volatility, return, and liquidity are high in financial markets with an intermediate level of information diffusion speed. This paper puts forward new reasons for differences in investors’ return from the perspective of investors’ social network, and holds that big data in the capital market deserve further exploration with the social network method.


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About this article

Investors’ Social Network and Return

Show Author's information Yu He1,3( ), Rong Lu1, Xiao Han2
Department of Finance, Shanghai University of Finance and Economics, Shanghai 200433, China
Department of Investment, Zhejiang University of Finance and Economics, Hangzhou 310018, China
School of Information Management & Engineering, Shanghai University of Finance and Economics, Shanghai 200433, China

Abstract

Restricted by the availability of investors’ account data, existing studies know little about the reasons for differences in investors’ return in financial markets. Given this, this paper, based on the unique account data, reveals that the differences in investors’ return are correlated to their locations in the social network. Conclusions are as follows. (1) Investors’ social network constructed based on the submission time of completed orders describes the information diffusion process of financial markets. Information diffuses from the center of the network to the edge, and investors’ return depends on their position in the network. (2) Investors’ social network affects their return through the positive spillover mechanism of their behavior. Wealthy investors are in the center of the social network, the stronger the information sharing, the higher the status in the network, the higher the return; while retail investors are on the edge of the social network, and when their network centrality is certain, they even suffer return penalty for information sharing. (3) The speed of information diffusion in investors’ social network has an important impact on asset pricing. Stocks’ volatility, return, and liquidity are high in financial markets with an intermediate level of information diffusion speed. This paper puts forward new reasons for differences in investors’ return from the perspective of investors’ social network, and holds that big data in the capital market deserve further exploration with the social network method.

Keywords: social networks, information diffusion, investor networks, investors’ return, asset pricing

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Received: 06 May 2022
Revised: 10 June 2022
Accepted: 27 June 2022
Published: 30 September 2022
Issue date: September 2022

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