Tracking endogenous fluctuations in stock prices emerged as a key challenge for empirical work in behavioural and evolutionary finance. This paper uses new data from an online discussion forum, Reddit, to quantify social contagion, or 'hype,' in specific stock market movements, using state of the art opinion dynamics modelling and sentiment analysis. The influence between users on the WallStreetBets (WSB) subreddit is measured by tracing the probability of a user starting a fresh discussion on an asset given their previous involvement in a discussion on the same asset, measured by their comment history . This paper finds that users who comment on one discussion involving a particular asset are approximately four times more likely to start a new discussion about this asset in the future , with the probability increasing with each additional discussion the user engages in. This is a strong indication that investment strategies are reproduced through social interaction. This is further validated by findings that sentiments expressed in the linked submissions are strongly correlated in a set of spatial regression models. In particular, bearish sentiments seem to spread more than their bullish counterparts .
This paper develops an empirical and theoretical case for how 'hype' among retail investors can drive large asset fluctuations. We use the dataset of discussions on WallStreetBets (WSB) , an online investor forum with over nine million followers as of April 2021, to show how excitement about trading opportunities can ripple through an investor community with large market impacts . This paper finds empirical evidence of psychological contagion among retail investors by exploiting differences in stock price fluctuations and discussion intensity. We show that asset discussions on WSB are self-perpetuating: an initial set of investors attracts a larger and larger group of excited followers. Sentiments about future stock performance also spread from one individual to the next, net of any fundamental price movements. Leveraging these findings, we develop a model for how social contagion impacts prices. The proposed model and simulations show that social contagion has a destabilizing effect on markets. Finally, we establish a causal relationship between WSB activity and financial markets using an instrumental variable approach .
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Tracking endogenous fluctuations in stock prices emerged as a key challenge for empirical work in behavioural and evolutionary finance. This paper uses new data from an online discussion forum, Reddit, to quantify social contagion, or 'hype,' in specific stock market movements, using state of the art opinion dynamics modelling and sentiment analysis. The influence between users on the
This paper develops an empirical and theoretical case for how 'hype' among retail investors can drive large asset fluctuations. We use the dataset of discussions on
R
subreddit is measured by tracing the probability of a user starting a fresh discussion on an asset given their previous involvement in a discussion on the same asset, measured by their comment history
, an online investor forum with over nine million followers as of April 2021, to show how excitement about trading opportunities can ripple through an investor community with large market impacts
R
that users who comment on one discussion involving a particular asset are approximately four times more likely to start a new discussion about this asset in the future , with the probability increasing with each additional discussion the user engages in. This is a strong indication that investment strategies are reproduced through social interaction. This is further validated by findings that sentiments expressed in the linked submissions are strongly correlated in a set of spatial regression models. In particular, bearish sentiments seem to spread more than their bullish counterparts
empirical evidence of psychological contagion among retail investors by exploiting differences in stock price fluctuations and discussion intensity. We show that asset discussions on WSB are self-perpetuating: an initial set of investors attracts a larger and larger group of excited followers. Sentiments about future stock performance also spread from one individual to the next, net of any fundamental price movements. Leveraging these findings, we develop a model for how social contagion impacts prices. The proposed model and simulations show that social contagion has a destabilizing effect on markets. Finally, we establish a causal relationship between WSB activity and financial markets using an instrumental variable approach