How Financial Influencers Rise: Performance Following and Social Transmission Bias
Abstract
Using unique account-level data from a leading Chinese fintech platform, we investigate how financial influencers, the key information intermediaries in social finance, attract followers through a process of social transmission bias. We document a robust performance-following pattern wherein retail investors overextrapolate influencers' past returns rather than rational learning in the social network from their past performance. The transmission bias is amplified by two mechanisms: (1) influencers' active social engagement and (2) their index fund-heavy portfolios. Evidence further reveals influencers' self-enhancing reporting through selective performance disclosure. Crucially, the dynamics ultimately increase risk exposure and impair returns for follower investors.