Will the reddit rebellion take you to the moon? Evidence from WallStreetBets

Abstract

In early 2021, several stocks receiving attention from retail traders known as “meme stocks” soared in value. A primary source of information regarding these stocks is from the social media platform Reddit, specifically from a subreddit known as WallStreetBets (WSB).This paper investigates whether a simple and easily implementable trading strategy following the WallStreetBets (WSB) subreddit can produce alpha. We document no evidence this is the case. Though we do observe a positive relation between WSB submissions and abnormal trading volume, we find that a portfolio that goes long buy recommendations and short sell recommendations each day is not profitable on a risk-adjusted basis. Holding periods from one day to one year fail to produce alpha. These findings are robust to a variety of different portfolio formation strategies. Our results provide an early look at the data following the explosion of interest in social media inspired retail investing.