To be honest, I found it hilarious to scroll through all the memes at Reddit’s r/wallstreetbets subreddit.
The dynamics occurring on Reddit – specifically that retail investors crowd together on a social media platform to short squeeze an asset – is unprecedented. Note, however, that the role of retail investors and their behavior in financial markets is well studied. Cf. Barber, B. M., Odean, T., & Zhu, N. (2008) or Barber, B. M., & Odean, T. (2013), for example.
This new phenomenon, the narrative of David vs. Goliath, or Redditors vs. Wall Street, will probably have a sustained impact on financial markets, regardless of whether this was driven by retail investors or other hedge funds seeing the opportunity.
But how has this phenomenon evolved over time and how is it linked to trading volume of the GameStop stock ($GME)? To obtain a first impression, I quantify the r/wallstreetbets activity using the pushshift.io API (the Reddit API only allows a few requests, see the praw documentation for python). I downloaded all submissions, comments, replies, and so on from January 1st, 2020 to January 31st, 2021. This results in data set with rich information about the posts, their scores, and their authors, among others.
I counted the daily number of submissions on r/wallstreetbets and merged it to the trading volume of $GME taken from Yahoo Finance. The following figure plots the results from 1st January 2021, to 24th January 2021.
As expected, the two time-series show some sort of co-movement. What is striking is the huge volume spike of GME trades on 13th January 2021. Interestingly, this event did not grab much retail attention once we take a look on Google Trends:
At the end of January 2021, the number of submissions on r/wallstreetbets reached its peak. This day coincided with the day on which Robinhood restricted purchases of $GME (and some others). Here is the plot from 1st January 2021 to 31st January 2021.
Last, I took a quick glance at the content of the posts. I pooled all 466,472 submissions on r/wallstreetbets from 1st to 31st January 2021, and processed the text by applying standard text processing techniques, i.e., dropped stop words, lowered, tokenized, and stemmed each word. The following word cloud shows the 100 most used words.
By the way: “buy” and “hold” were mentioned 5 times as often as “sell”.
I hope this blog post provided some descriptive insights. If you have any questions, or if you’re interested in the data, or some sort of collaboration, hit us up at either firstname.lastname@example.org or email@example.com.
Barber, B. M., Odean, T., & Zhu, N. (2008). Do retail trades move markets?. The Review of Financial Studies, 22(1), 151-186.
Barber, B. M., & Odean, T. (2013). The behavior of individual investors. In Handbook of the Economics of Finance (Vol. 2, pp. 1533-1570). Elsevier.