The Rise of Social Trading Platforms: The Effects of Upward and Downward Social Comparison on Risk-taking and Investor Satisfaction

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In the past two decades, social trading platforms like eToro and Zulutrade grew tremendously. On these platforms, investors could reach in contact with other investors and even copy trade them. Therefore, social comparison starts to play in financial markets. Investors’ perception of their performance could change based on the information about other traders. Former research states that social comparison increases risk-taking. Research in psychology explains how upward social comparison induces negative feelings while downward social comparison enhances positive feelings. This paper focuses on the effect of social comparison on both risk-taking behavior and investor satisfaction using a survey. According to previous literature, this paper expects that upward social comparison increases risk-taking and decreases investor satisfaction while downward social comparison reduces risk-taking and increases investor satisfaction. The results show no significant effect for both types of social comparison on risk-taking behavior. The portfolio return is the main driver of investor satisfaction. In some cases, social comparison affects investor satisfaction. However, there is no clear and unambiguous effect. Future research could focus on the effect of copy trading on investor satisfaction or the relation between different types of social comparison (comparison to the average, best or worst performer) and investor satisfaction.
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