Meme Stocks and Individual Investor Trading: Evidence from Reddit Outages

62 Pages Posted: 29 Nov 2023 Last revised: 19 Dec 2023

See all articles by Yongxin Xu

Yongxin Xu

Monash University

Yuhao Xuan

Sun Yat-sen University (SYSU) - Lingnan (University) College

Xinran Zhang

Central University of Finance and Economics (CUFE) - School of Finance

Gaoping Zheng

RMIT University

Date Written: July 11, 2023

Abstract

During exogenous outages of Reddit, the predictability of retail order imbalance on future returns for meme stocks (i.e., stocks discussed extremely enthusiastically in the subreddit wallstreetbets) increases dramatically. This result is robust to various model specifications. The improved predictability is stronger for stocks discussed more fanatically before the outages, especially when influencers endorse fanatic views. Our results suggest that heated discussions on social media lead to “fanatics” pushing retail investors to make less informative trading. Our findings cannot be explained by the drop in attention. The overall market quality, such as return volatility and stock liquidity, does not change significantly.

Keywords: Meme stocks, Retail investor, Social media, Behavioral biases

JEL Classification: G11, G14, G18, G41

Suggested Citation

Xu, Yongxin and Xuan, Yuhao and Zhang, Xinran and Zheng, Gaoping, Meme Stocks and Individual Investor Trading: Evidence from Reddit Outages (July 11, 2023). Available at SSRN: https://ssrn.com/abstract=4629865 or http://dx.doi.org/10.2139/ssrn.4629865

Yongxin Xu

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Yuhao Xuan (Contact Author)

Sun Yat-sen University (SYSU) - Lingnan (University) College ( email )

GuangZhou, GuangDong
China

Xinran Zhang

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Gaoping Zheng

RMIT University ( email )

Australia

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