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April 9, 2008

Make Money Fast!!! CSCO Roolz! etc.

Wish I had more time to look at the results of this paper, because its results strike me as entertainingly implausible -- not to mention sort of creepy and unhygienic -- but I'm at least intrigued:

Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room

BRUCE MIZRACH
Rutgers, The State University of New Jersey - Department of Economics
SUSAN WEERTS
Rutgers, The State University of New Jersey - Department of Economics

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March 16, 2008

Abstract:
We analyze the trading activity in an Internet chat room over a four-year period. The data set contains nearly 9,000 trades from 676 traders. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they have statistically significant alphas of 0.17% per day after controlling for the Fama-French factors and momentum. Traders hold their winners 25% longer than their losers. 42% trade both long and short, with equal success rates, and almost double the profit per trade when short. The estimates show a strong influence from other traders, with a buy (sell) order 40.7% more likely to be of the same sign if there has been a recent post. Traders improve their skill over time, earning an extra $189 per month for each year of trading experience. They also gain expertise in trading particular stocks. Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade.

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