In a recent research paper from the Swiss Finance Institute titled "Finfluencers," a startling revelation sheds light on the world of financial influencers. This study dives deep into the impact of these "finfluencers" on the financial landscape, revealing some surprising findings that could reshape the way we approach financial advice and trading decisions.

Skill Divide

The Swiss Finance Institute's research paper reveals a stark contrast within the world of finfluencers. It appears that 28% of these financial influencers possess genuine skills, consistently generating impressive monthly abnormal returns averaging 2.6%. However, the majority, a staggering 72%, are either unskilled or worse, have negative skill, resulting in monthly abnormal returns as low as -2.3%. This significant skill divide is a crucial aspect that every trader and investor should be aware of.

Impact of Unskilled Finfluencers

Unskilled finfluencers play a dangerous role in the market. The research paper indicates that they tend to create overly optimistic beliefs, which can lead to excessive trading. Have you ever seen people online posting rocket emojis with their market calls and saying “boom” when they hit? This is a great sign of an unskilled finfluencer. This over-optimism can be detrimental to traders who rely on their advice, potentially resulting in substantial losses.

Popularity vs. Skill

Interestingly, the study also reveals an intriguing trend regarding popularity and skill. While one might assume that the most skilled finfluencers would have the largest following, the opposite is often true. The most skilled finfluencers tend to have fewer followers, while the antiskilled (those with negative skills) enjoy more significant popularity. This finding raises questions about the wisdom of the crowd in social media when it comes to financial decisions.

Tweet Behavior

The research paper delves into the behavior of finfluencers on social media platforms. Skilled finfluencers appear to be more active on platforms like Twitter during periods of high trading volume. Additionally, they tend to tweet more positively in response to negative news. These behaviors might be indicative of their ability to adapt and provide valuable insights during turbulent market times.

Contrarian Strategy

One of the most intriguing takeaways from the study is the potential for a contrarian investment strategy. Trading against the most popular finfluencers, who often lack genuine financial skills, could yield significant benefits. The research paper suggests that such a strategy could lead to 1.2% monthly out-of-sample performance.

In conclusion, the world of finfluencers is a double-edged sword. While some possess genuine financial skills and offer valuable insights, the majority may be leading traders and investors astray with their lack of expertise. As traders and investors, it's essential to critically assess the advice we receive from these influencers and consider adopting a contrarian approach to navigate this complex landscape. The Swiss Finance Institute's research paper serves as a valuable guide in making informed decisions in the ever-evolving world of finance.