EUROPEAN REVIEW OF BUSINESS ECONOMICS

[Digital ISBN: e-2184-898X | https://erbe.autonoma.pt]

ERBE 04 2 03

Digital Engagement Practices and Financial Assets Trading

VICTOR MENDES a,b

a CMVM – Comissão do Mercado de Valores Mobiliários, b CICEE – Research Center in Economics & Business Sciences.

To cite this article:

Victor Mendes. 2025. Digital Engagement Practices and Financial Assets Trading, European Review of Business Economics, IV(2): 47-83.

DOI: https://doi.org/10.26619/ERBE-2024.4.2.3

Received: 20 February 2025. Accepted: 14 May 2025. Published: 30 June 2025.

Language: English

View full text (PDF) PDF

Abstract

This paper examines the association between the use of digital media to trade financial assets and the frequency with which these financial assets are traded. After concluding that there is a positive association between the use of digital media and the frequency with which investors trade financial assets, we then analyse the association between the existence of automatically generated messages on the platform through which transactions are made and the frequency with which investors trade online. The main conclusion is that the way trading platforms are designed and the continued contact they have with their users help to explain the higher number of trades made by investors who use digital media, particularly those who trade stocks, bonds and/or investment funds.

Keywords

Digital engagement practices; Financial assets.

Abreu, M., & Mendes, V. (2020). Do individual investors trade differently in different financial markets? The European Journal of Finance, 26(13), 1253–1270. https://doi.org/10.1080/1351847X.2019.1709524
Ammann, M., & Schaub, N. (2021). Do individual investors trade on investment-related internet postings? Management Science, 67(9), 5679–5702. https://doi.org/10.1287/mnsc.2020.3733
Andraszewicz, S., Kaszás, D., Zeisberger, S., & Hölscher, C. (2023). The influence of upward social comparison on retail trading behaviour. Scientific Reports, 13(1), 22713. https://doi.org/10.1038/s41598-023-49648-3
Apesteguia, J., Oechssler, J., & Weidenholzer, S. (2020). Copy trading. Management Science, 66(12), 5608–5622. https://doi.org/10.1287/mnsc.2019.3508
Barber, B. M., Huang, X., Odean, T., & Schwarz, C. (2022). Attention-Induced Trading and Returns: Evidence from Robinhood Users. The Journal of Finance, 77(6), 3141–3190. https://doi.org/10.1111/jofi.13183
Barber, B. M., & Odean, T. (2001). The internet and the investor. Journal of Economic Perspectives, 15(1), 41–54.
Barber, B. M., & Odean, T. (2015). Online Investors: Do the Slow Die First? The Review of Financial Studies, 15(2), 455–488. https://doi.org/10.1093/rfs/15.2.455
Bogan, V. (2008). Stock Market Participation and the Internet. Journal of Financial and Quantitative Analysis, 43(1), 191–211. https://doi.org/10.1017/S0022109000002799
Breitmayer, B., Mensmann, M., & Pelster, M. (2018). Social recognition and investor overconfidence. Available at SSRN 3140827. https://doi.org/10.2139/ssrn.3140827
Broihanne, M. (2023). Gamification and Copy Trading in Finance: An Experiment.
Bursztyn, L., Ederer, F., Ferman, B., & Yuchtman, N. (2014). Understanding Mechanisms Underlying Peer Effects: Evidence From a Field Experiment on Financial Decisions. Econometrica, 82(4), 1273–1301. https://doi.org/10.3982/ECTA11991
Cai, W., & Lu, J. (2019). Investors’ financial attention frequency and trading activity. Pacific-Basin Finance Journal, 58, 101239. https://doi.org/10.1016/j.pacfin.2019.101239
Cen, X. (2024). Smartphone trading technology, investor behavior, and mutual fund performance. Management Science, 70(10), 6897–6916. https://doi.org/10.1287/mnsc.2021.02099
Cen, X., & Li, N. (2023). Information access and asset allocation: Evidence from mobile technology. Available at SSRN 4660989. https://doi.org/10.2139/ssrn.4660989
Chapkovski, P., Khapko, M., & Zoican, M. (2024). Trading gamification and investor behavior. Management Science. https://doi.org/10.1287/mnsc.2022.02650
Chaudhry, S., & Kulkarni, C. (2021). Design patterns of investing apps and their effects on investing behaviors. Proceedings of the 2021 ACM Designing Interactive Systems Conference,  https://doi.org/10.1145/3461778.3462008
Chen, Y., Liu, C.-W., & Wen, M.-H. (2023). Alert for Alerts: How Investment Price Tracking Alerts Affect Retail Investors. Available at SSRN 4466498. https://doi.org/10.2139/ssrn.4466498
Choi, J. J., Laibson, D., & Metrick, A. (2002). How does the Internet affect trading? Evidence from investor behavior in 401(k) plans. Journal of Financial Economics, 64(3), 397–421. https://doi.org/10.1016/S0304-405X(02)00130-7
Drake, M. S., Thornock, J. R., & Twedt, B. J. (2017). The internet as an information intermediary. Review of Accounting Studies, 22(2), 543–576. https://doi.org/10.1007/s11142-017-9395-1
Even-Tov, O., Kogan, S., & So, E. C. (2022). Fee the people: Retail investor behavior and trading commission fees. MIT Sloan Research Paper No. 6801-22, Available at SSRN. https://doi.org/10.2139/ssrn.4226044
Farrell, M., Green, T. C., Jame, R., & Markov, S. (2022). The democratization of investment research and the informativeness of retail investor trading. Journal of Financial Economics, 145(2, Part B), 616–641. https://doi.org/10.1016/j.jfineco.2021.07.018
Fender, R. (2022). Enhancing Investors’ Trust. C. Institute.
Florendo, J., & Estelami, H. (2019). The role of cognitive style, gullibility, and demographics on the use of social media for financial decision making. Journal of Financial Services Marketing, 24(1), 1–10. https://doi.org/10.1057/s41264-019-00064-7
Frydman, C., & Wang, B. (2020). The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment. The Journal of Finance, 75(1), 229–276. https://doi.org/10.1111/jofi.12851
Gao, M., & Huang, J. (2019). Informing the Market: The Effect of Modern Information Technologies on Information Production. The Review of Financial Studies, 33(4), 1367–1411. https://doi.org/10.1093/rfs/hhz100
Gathergood, J., Gilchrist, C., Hayes, L., Karapetyan, D., O’Neill, S., & Stewart, N. (2024). Digital engagement practices: A trading apps experiment. Financial Conduct Authority. https://www.fca.org.uk/publication/research-notes/research-note-digital-engagement-practices-trading-apps-experiment.pdf
Gemayel, R., & Preda, A. (2018). Does a scopic regime erode the disposition effect? Evidence from a social trading platform. Journal of Economic Behavior & Organization, 154, 175–190. https://doi.org/10.1016/j.jebo.2018.08.014
Havakhor, T., Rahman, M. S., Zhang, T., & Zhu, C. (2025). Tech-Enabled Financial Data Access, Retail Investors, and Gambling-Like Behavior in the Stock Market. Management Science, 71(2), 1646–1670. https://doi.org/10.1287/mnsc.2021.01379
Hong, C. Y., Lu, X., & Pan, J. (2025). Fintech Platforms and Mutual Fund Distribution. Management Science, 71(1), 488–517. https://doi.org/10.1287/mnsc.2022.01966
Jacobs, H., & Hillert, A. (2015). Alphabetic Bias, Investor Recognition, and Trading Behavior *. Review of Finance, 20(2), 693–723. https://doi.org/10.1093/rof/rfv060
Jin, X., & Yu, J. (2022). Does communication increase investors’ trading frequency? Evidence from a Chinese social trading platform. Financial Innovation, 8(1), 68. https://doi.org/10.1186/s40854-022-00373-2
Jin, X., Zhu, Y., & Huang, Y. S. (2019). Losing by learning? A study of social trading platform. Finance Research Letters, 28, 171–179. https://doi.org/10.1016/j.frl.2018.04.017
Kadous, K., Mercer, M., & Zhou, Y. (2025). Why do investors rely on low-quality investment advice? Experimental evidence from social media platforms. Behavioral Research in Accounting, 37(1), 97–115. https://doi.org/10.2308/BRIA-2023-015
Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision Under Risk. In Handbook of the Fundamentals of Financial Decision Making (pp. 99–127). https://doi.org/10.1142/9789814417358_0006
Kourtidis, D., Šević, Ž., & Chatzoglou, P. (2011). Investors’ trading activity: A behavioural perspective and empirical results. The Journal of Socio-Economics, 40(5), 548–557. https://doi.org/10.1016/j.socec.2011.04.008
Krull, S., Pelster, M., & Steinorth, P. (2024). Skill, effort, luck: Determinants of rank-based endowments and risk-taking in a social setting. Journal of Behavioral and Experimental Finance, 42, 100924. https://doi.org/10.1016/j.jbef.2024.100924
Mosenhauer, M., Newall, P. W., & Walasek, L. (2021). The stock market as a casino: Associations between stock market trading frequency and problem gambling. Journal of Behavioral Addictions, 10(3), 683–689. https://doi.org/10.1556/2006.2021.00058
Moss, A. (2022). How Do Brokerages’ Digital Engagement Practices Affect Retail Investor Information Processing and Trading? (Publication Number 30000977) [Ph.D., The University of Iowa]. ProQuest Central; ProQuest One Business. United States — Iowa. https://www.proquest.com/dissertations-theses/how-do-brokerages-digital-engagement-practices/docview/2776270394/se-2?accountid=43623
OSC. (2022a). Digital Engagement Practices in Retail Investing: Gamification and Other Behavioural Techniques. O. S. N. 11-796. https://www.osc.ca/sites/default/files/2022¬11/sn_20221117_11-796_gamification-report.pdf
OSC. (2022b). Digital Engagement Practices: Dark Patterns in Retail Investing. O. S. Commission. https://www.osc.ca/sites/default/files/2024-02/inv-research_20240223_dark-patterns.pdf
Ozik, G., Sadka, R., & Shen, S. (2021). Flattening the Illiquidity Curve: Retail Trading During the COVID-19 Lockdown. Journal of Financial and Quantitative Analysis, 56(7), 2356–2388. https://doi.org/10.1017/S0022109021000387
Pan, Y., Sunil, M., J., P.-A. H. J., & and Liu, C.-W. (2023). Do Risk Preferences Shape the Effect of Online Trading on Trading Frequency, Volume, and Portfolio Performance? Journal of Management Information Systems, 40(2), 440–469. https://doi.org/10.1080/07421222.2023.2196777
Pelster, M., & Breitmayer, B. (2019). Attracting attention from peers: Excitement in social trading. Journal of Economic Behavior & Organization, 161, 158–179. https://doi.org/10.1016/j.jebo.2019.03.010
Pelster, M., & Hofmann, A. (2018). About the fear of reputational loss: Social trading and the disposition effect. Journal of Banking & Finance, 94, 75–88. https://doi.org/10.1016/j.jbankfin.2018.07.003
Ramachandran, S. (2022). Fun and Games: Investment Gamification and Implications for Capital Markets. https://rpc.cfainstitute.org/research/reports/2022/investment-gamification-implications
Reiter, M., Qing, D., & Nations, M. (2023). Who uses social media for investment advice. Journal of Financial Planning, 36(9), 78–99.
Securities and Exchange Commission (SEC). (2021). Release Nos. 34-92766 – Request for Information and Comments on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology to Develop and Provide Investment Advice. https://www.sec.gov/files/rules/other/2021/34-92766.pdf
Shiller, R. J., Fischer, S., & Friedman, B. M. (1984). Stock prices and social dynamics. Brookings papers on economic activity, 1984(2), 457–510. https://doi.org/10.2307/2534436
Wang, G., Wang, T., Wang, B., Sambasivan, D., Zhang, Z., Zheng, H., & Zhao, B. Y. (2015). Crowds on wall street: Extracting value from collaborative investing platforms. Proceedings of the 18th ACM conference on computer supported cooperative work & social computing, Vancouver, BC, Canada.  https://doi.org/10.1145/2675133.2675144
Welch, I. (2022). The Wisdom of the Robinhood Crowd. The Journal of Finance, 77(3), 1489–1527. https://doi.org/10.1111/jofi.13128
Wu, H., & Wu, C. (2024). Mobile device use and the ranking effect on trading behavior: Evidence from natural experiments. Pacific-Basin Finance Journal, 85, 102317. https://doi.org/10.1016/j.pacfin.2024.102317
Zhu, R. R., He, C., & Hu, Y. J. (2023). The Effect of Product Recommendations on Online Investor Behaviors. arXiv preprint arXiv:2303.14263. https://doi.org/10.48550/arXiv.2303.14263

© Copyright CICEE 2025.
All rights reserved

Back To Top