Echo Chambers in Investment Discussion Boards

We examine the quality of information and communication in online investment discussion boards. We show that positivity bias and skewed risk/reward assessments, exacerbated by the insular nature of the community and its social structure, contribute to underperforming investment advice and unnecessary trading. Discussion post sentiment has negligible correlation with future stock market returns, but does have a positive correlation with trading volumes and volatility. Our trading simulations show that across different timeframes, this misinformation leads 50-70% of users to underperform the market average. We then examine social structure in communities, and show that the majority of market sentiment is produced by a small number of community leaders, and that many members actively resist negative sentiment, thus minimizing viewpoint diversity. To improve generated information content in online investment communities, we suggest designing to increase diversity of opinion, minimize friction around incorporating new information, and provide performance feedback for self-correction.