How online discussion board activity affects stock trading: the case of GameStop

Betzer, André; Harries, Jan Philipp

doi:10.1007/s11408-022-00407-w

Cited by 20 publications

(8 citation statements)

References 48 publications

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“…7 we further assume to know a linear mapping between the mean sentiment and the control parameter c to perform a more quantitative comparison. This latter exercise follows the same setup of the various works [18][19][20][21][22][23][24] that try to use sentiment to predict stock price movements, however with a different aim: showing that the abrupt formation of consensus in the model is qualitatively similar to the GME price change due to the short squeeze.…”

Section: Discussionmentioning

confidence: 99%

Self-induced consensus of Reddit users to characterise the GameStop short squeeze

Mancini

Desiderio

Clemente

et al. 2022

Sci Rep

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The short squeeze of GameStop (GME) shares in mid-January 2021 has been primarily orchestrated by retail investors of the Reddit r/wallstreetbets community. As such, it represents a paramount example of collective coordination action on social media, resulting in large-scale consensus formation and significant market impact. In this work we characterise the structure and time evolution of Reddit conversation data, showing that the occurrence and sentiment of GME-related comments (representing how much users are engaged with GME) increased significantly much before the short squeeze actually took place. Taking inspiration from these early warnings as well as evidence from previous literature, we introduce a model of opinion dynamics where user engagement can trigger a self-reinforcing mechanism leading to the emergence of consensus, which in this particular case is associated to the success of the short squeeze operation. Analytical solutions and model simulations on interaction networks of Reddit users feature a phase transition from heterogeneous to homogeneous opinions as engagement grows, which we qualitatively compare to the sudden hike of GME stock price. Although the model cannot be validated with available data, it offers a possible and minimal interpretation for the increasingly important phenomenon of self-organized collective actions taking place on social networks.

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Section: Discussionmentioning

confidence: 99%

Self-induced consensus of Reddit users to characterise the GameStop short squeeze

Mancini

Desiderio

Clemente

et al. 2022

Sci Rep

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show abstract

“…When investigating the usefulness of Reddit posts, several studies focus on short squeezes. Betzer and Harries ( 2022 ) investigate the relationship between Reddit posts and GameStop retail trading. They find a significant increase in trading activity after Reddit posts but no significant relationship between Reddit posts and realized abnormal returns.…”

Section: Theoretical Background and Hypothesesmentioning

confidence: 99%

Financial recommendations on Reddit, stock returns and cumulative prospect theory

Reichenbach

Walther

2023

Digit Finance

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This study investigates stock recommendations from the three largest finance subreddits on Reddit: wallstreetbets, investing and stocks. A simple strategy that buys recommended stocks weighted by the number of posts per day yields a portfolio with higher average returns at the expense of higher risks than the market for all holding periods, i.e., unfavorable Sharpe ratios. Furthermore, the strategy leads to positive (insignificant) short-term and negative (significant) long-term alphas when considering common risk factors. This is consistent with the idea of “meme stocks”, meaning that the recommended stocks are artificially inflated in the short term when they are recommended, and that the posts contain no information about long-term success. However, it is likely that Reddit users, especially on the subreddit wallstreetbets, have preferences for bets which are not captured by the mean–variance framework. Therefore, we draw on cumulative prospect theory (CPT). We find that the CPT-valuations of the Reddit portfolio exceed those of the market, which may explain the persistent attractiveness for investors to follow social media stock recommendations despite the unfavorable risk-return ratio.

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“…This is not the case for so-called meme stocks which have enjoyed recent popularity. Driven primarily by retail traders, meme stock trading activity has been shown to be largely influenced by Reddit discussion forums [54][55][56]. Reddit is organized into subreddits on which specific topics are being discussed.…”

Section: (E))mentioning

confidence: 99%

Non-Normal Interactions Create Socio-Economic Bubbles

Sornette¹,

Lera²,

Lin³

et al. 2022

SSRN Journal

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How online discussion board activity affects stock trading: the case of GameStop

Cited by 20 publications

References 48 publications

Self-induced consensus of Reddit users to characterise the GameStop short squeeze

Self-induced consensus of Reddit users to characterise the GameStop short squeeze

Financial recommendations on Reddit, stock returns and cumulative prospect theory

Non-Normal Interactions Create Socio-Economic Bubbles

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