Value of Recommendation Systems for Online Investors

2. Background

Thanks to technology, investors can now sell and buy investment instruments, e.g., stocks online, access real time market information and statistics, and perform online research using methods that were scarcely available a decade ago. The diffusion of technology and automation into businesses worldwide has had profound impacts on markets. However, despite the trend by most firms worldwide to automate their processes, a few markets, including the stock market, still have not taken a full advantage of automation, despite the vast advancements in technology (Peterffy & Battan, 2004). Furthermore, online investment is a major Internet domain which suffers from the information overload problem, due to the availability of a huge quantity of stocks, bonds, futures and other instruments. This appears to be a domain which is in desperate need of information filtering (Tseng, 2004). Online trading firms, such as E-trade and Ameritrade, are among the most successful and vivid financial firms to appear on the Internet within the last decade. The number of online investors grew to 12.5 million over the period from 1995-2000, while it was estimated in 2003 that the number of online investors will grow to 42 million (Barber & Odean, 2001).