We Reddit in a Forum: The Influence of Messaging Boards on Firm Stability

Abstract

The use of messaging boards to instigate coordinated manipulation of stock prices is not a novel phenomenon. However, the growing breadth and sophistication of social media, the widespread availability of technological cloaking techniques, and the ready accessibility of leveraged derivatives have all acted as a significant contributory factor to the growth of the infamous Reddit-based/wallstreet bets forum. Through the use of a lexicon of terminology designed to identify explicit and implicit manipulation attempts, this research presents a number of novel findings. Results indicate significantly positive, pronounced, and persistent abnormal returns in the aftermath of such manipulative events, where results are robust across a number of placebo testing procedures. Such abnormal returns are found to have increased significantly in line with the growth of forum users and the reach of such comments. Significant effects are further identified across tests based on market liquidity and analyst recommendation. While such continued predatory headwinds are most certainly of interest to market-makers, regulators, and policy-makers alike, incited irrational exuberance generated within millennial meme-stocks and sarcastic gifs are found to have played a significant role in disrupting market functionality. The desired outcome for some of these five million monthly forum users is to create enough momentum to trigger algorithmic responses to move out-of-the-money options into a profitable state. Such results present evidence of another potential threat to corporate stability.

Keywords: Market Activity; Liquidity; Volatility; Pump-and-Dump; Manipulation; Messaging Boards