Social trading: do signal providers trigger gambling?

Abstract Social trading—also referred to as copy trading—is an interactive platform-based innovation facilitating visibility and traceability of signal provider trading activities. Based on published portfolio transaction return track records, platform users can one or several providers, i.e. delegate their investment decisions, thereby become followers. Allowing providers administer purely virtual portfolios, in combination with a remuneration scheme based performance fees high watermarks, creates convex option-like incentives (Carpenter, J Finance 55:2311–2331, 2000; Doering Jonen, SSRN J, 2018). We argue that the incentive structure imposed by social including very limited monetary downside risk for may motivate traders gamble. In this context, we assess factors have impact lottery-like stock transactions (Bali et al., Financ Econ 99:427–446, 2011; Kumar, 64:1889–1933, 2009). provide empirical evidence tend increase traded relative share stocks when being located at extreme end spectrum. Furthermore, underperforming net exposure towards stocks, turn exposing followers structure—triggering gambling.