How does online social capital affect the online resilience of individual investors?

Social media platforms are becoming popular destinations for individual investors to make friends and seek investment advice from complete strangers. Meanwhile, financial markets have become increasingly volatile due to climate change and technological disruptions. Any financial shocks could potentially be damaging to vulnerable individual investors because of their low financial savviness and personal wealth.

In their working paper, Prof. Ke and his coauthors use proprietary data from one social investing platform to examine how networks or relationships that individual investors develop on social media (referred to as online social capital) affects their resilience on social media investment platforms (referred to as online investor resilience).

While the benefits and costs of offline social capital have been well documented, the role of online social capital is not well understood. In addition, the extent of online investor resilience has not been examined in existing literature.

Compared with offline social capital, we find that online social capital is more fragile. We find no evidence that online social capital gained before a stock market crash improves online investor resilience during the crash. However, online social capital established during the crash period improves online investor resilience.

Online investor resilience also affects investor wellbeing. Those with higher online investor resilience are happier and more likely to pay for investment advice on social media. The findings of this study should be of interest to regulators and social media platforms who wish to foster online investor resilience.

For more information, download the paper “Download A Friend in Need is a Friend Indeed: How Does Online Social Capital Affect the Resilience of Individual Investors on Social Media (PDF, 629 KB)”.