Experts online: An analysis of trading activity in a public Internet chat room

We analyze the trading activity in an Internet chat room over a 4-year period. The data set contains nearly 9000 trades from 676 traders. We find these traders are more skilled than retail investors analyzed in other studies. 55 percent make profits after transaction costs, and they have statistically significant α s of 0.17 percent per day after controlling for the Fama-French factors and momentum. Traders hold their winners 25 percent longer than their losers. 42 percent 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 percent 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.