On Wednesday my internal examiner approved the edits I did to my PhD thesis and I submitted it to the school’s online repository. That’s the last of the requirements on my end. All that’s left is for formal approval to be given by the Vice Chancellor’s Executive Group, which should happen this week (if it hasn’t already by the time you’re reading this). Then the long PhD process will truly be complete!
The title of my thesis is Trader Leverage Use and Social Interaction: The Performance Implications of Overconfidence and Social Network Participation on Retail Traders.
Here’s the abstract:
Overconfidence and its relationship to investor market participation is well established in the finance literature. The research into investors and social networks is only in its infancy, however. This thesis extends the literature by expanding on both subjects individually, then bringing them together.
Empirical work on individual investors in the existing literature links overconfidence and excess trading, resulting in impaired returns. The preferred activity metric, monthly account turnover, encapsulates two separate elements, though. One is trade frequency. The other is leverage use. Chapter 4 of this thesis theorizes based on the existing literature that in fact trade frequency is not a good measure of overconfidence. It then demonstrates through empirical analysis of a group of individual non-professional foreign exchange traders that leverage is much more suitable to that role.
Chapter 5 turns the focus to social networks, particularly with respect to information transfer. The literature in finance anticipates that network members benefit from their membership. Further, network position (social capital) enhances that benefit. This thesis challenges that expectation with respect to non-professional investors. Findings based on analysis of members of an online retail foreign exchange trader social network indicate that while there may be an educational benefit accruing to unsophisticated members, for more sophisticated ones membership appears to have a negative effect on returns.
One potential explanation for the negative impact of network membership is explored in Chapter 6 in the form of impression management. It is hypothesized that sophisticated investors are influenced in their behaviour by the realization they are being observed, and also the size of their audience. Analysis of foreign exchange traders indicates an increase in leverage use among sophisticated investors as their audience size increases, coinciding with a decline in trade excess returns, making the case for an observation-based rise in overconfidence.
Naturally, the thesis is heavily academic. I tried to make it as readable as possible, but you can only take things so far given expectations for language and style. If you want to have a look, you can get a PDF copy here.
The page count is 240, though there are a lot of tables. If you do actually read it, I’d be happy to hear what you think.