We find no evidence of a profitable trading strategy. We then form a daily rebalancing long-short portfolio that goes long “buy” suggestions and short “sell” suggestions, where the suggested stocks can be held for one day, one week, one month, or one year. We scrape buy and sell submissions from the WSB subreddit from its inception in 2012 through the first quarter of 2021 when the GameStop short squeeze occurred. stocks with the most bullish perception from social media and other alternative datasets, there appears to be interest in such a trading strategy. As evidenced by the creation of the VanEck Vectors Social Sentiment ETF (ticker BUZZ) which tracks the 75 large U.S. Our perspective is that of a typical retail trader that uses the WSB thread to make stock picks. Our approach is unique because rather than examining how opinions on a given forum can predict individual stock prices, we focus on whether a simple and easily implementable trading strategy following WSB can produce alpha. ( 2014) who find online opinions can predict stock returns. Two examples include Philipp and von Nitzsch ( 2013) who find no evidence of information content in aggregated recommendations and Chen et al. The literature to date has been mixed regarding whether individual opinions posted to social media are informative for stock prices. In this paper, we investigate whether a trading strategy that follows the WSB subreddit can consistently produce alpha. This unique combination of lower trading frictions, more time, and greater capital has led to a boom in retail accounts. According to Barron’s analysis of data from the Bureau of Economic Analysis (BEA), Americans have saved about $1.8 trillion more than they otherwise would have since the pandemic begun (Klein 2021). Finally, the largest monetary and fiscal stimulus packages to ever occur led to a significant increase in the amount of cash in retail investors’ hands. Second, the COVID-19 pandemic caused non-essential workers to largely remain at home for most of 2020, leading to lower consumer spending and greater time to pursue alternative ventures. Footnote 1 This ultimately led to a “race to zero” from other major brokers. First, Robinhood, a retail broker whose mission is to “democratize finance for all” introduced zero-commission stock trading and easy to access options trading. In this paper, we aim to address this very question.Ī unique sequence of events has led to significantly increased interest in stock and option trading by retail investors. It is less obvious, however, whether these groups can consistently produce a profitable trading strategy for their followers. It is undeniable that these groups, perhaps the most famous of which is the subreddit thread “WallStreetBets” (WSB), have had a material impact on certain stocks and commodities such as GameStop, AMC Theaters, and Silver. In recent times, retail investors have begun banding together through the use of online social platforms and executing strategies like short squeezes and gamma squeezes. Historically, retail investors with four or five digit investment accounts would need to aggregate their capital into a professionally managed fund in order to impact equity markets. Individual investors have greater access to financial markets than ever before.
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