Day traders made bigger profits when they moved with the herd
When minds think alike great things can happen, even if the minds themselves are not so great. Stock day traders who act in sync — no matter the stock, or whether they are buying or selling — make more money at the end of the day than their out-of-sync peers, reports an analysis to appear in the Proceedings of the National Academy of Sciences.
The research adds to a growing body of evidence that a collective wisdom can emerge from the myopic views of individuals. Understanding how and when could lead to ways of tapping that wisdom, enabling trading firms to make more money. Mining collective wisdom could also lead to new approaches for combating terrorism or fighting flu outbreaks, says study leader Brian Uzzi of Northwestern University in Evanston, Ill.
Uzzi and his Northwestern colleagues analyzed a year and a half of trades — more than a million transactions — made by 66 day traders at a single firm. Parsing the trading behavior do