The new ROI – “Return on Influentials”

We study the online market for social stock investing where individuals follow other investors in the community for their investment decisions. Using data from kaChing.com, one of the largest social investing marketplaces, we investigate whether and how various aspects of an individual’s social networks affect her investment performance. Using social network methodologies and theories of information cascades and imitation, this study explores the outcomes of such networks and imitation behavior on investors’ performance. We find that having a social network, as well as the presence of structural holes in one's network, contribute to improved performance. We also analyze two different modes of imitation and herding, and find that while information-based herding leads to improved performance, reputation-based herding negatively affects performance. We discuss the implications of our findings for theory and practice.