Meme Stocks and Individual Investor Trading: Evidence from Reddit Outages

During exogenous Reddit outages, the predictability of retail order imbalance on future returns for meme stocks (stocks discussed with extreme enthusiasm in the subreddit Wallstreetbets) increases dramatically. This enhanced predictability is stronger for stocks that received more fanatical discussions or influencers’ attention prior to outage days, and when meme stocks are concurrently discussed on Seeking Alpha during the outage days. Conversely, the effect weakens when pre-outage Wallstreetbets posts contain “Due Diligence” analysis. Our results suggest that heated social media discussions result in retail investors making less informative trading decisions. These findings cannot be explained by a reduction in attention-induced trading.

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

JEL Classification: G11, G14, G18, G41

Suggested Citation: 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