Reddit's self-organised bull runs: Social contagion and asset prices

Julian Winkler and Valentina Semenova

INET Oxford Working Papers from Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

Abstract: 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.

JEL-codes: D91 G14 G41 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2021-01, Revised 2021-05
New Economics Papers: this item is included in nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.inet.ox.ac.uk/files/Reddit_draft_v2.pdf (application/pdf)

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Working Paper: Reddit's self-organised bull runs: Social contagion and asset prices (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:amz:wpaper:2021-04

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