Echo chambers in a social finance platform and option-implied moments of stock performance

Abstract

This thesis examines the role of echo chamber in financial markets. Using measures built by Cookson et. al. (2022) and variables based on option prices (DeMiguel et. al. (2013)), I analyzed how selective exposure shapes investors' perceptions of implied risks and expected excess stock returns. The results highlight that increased disagreement expressed by users stimulates trading activity, in line with Cookson et. al. (2022). Next, I document that a greater dispersion in the messages a member receives leads to a higher probability of extreme payoffs; higher implied skewness, volatility and expected returns. The analysis shows that the investors' tendency to interact with information that confirms their pre-existing beliefs, creates a polarised environment that biases users' trading decisions and market stability in the short run.

Date of Award	27 Jan 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Tural Karimli (Supervisor)