Dumb Money? Social Network Attention Herding, Sentiment, and Markets

Abstract

WallStreetBets provides the perfect echo chamber to study retail investor attention herding and sentiment, and their impact on stock prices. We train a machine learning model to classify daily forum-wide sentiment and individual stock sentiment. We show that forum-wide sentiment is inversely related to the VIX. Our monthly Attention Herding Portfolio generates sizable alphas. When retail attention herds bullishly on a stock, the network spillover is large enough to impact retail trades, but unlike Barber et al. (2022), there is no reversal in stock returns. We also test the role of influencers and their role in the network.

Keywords: machine learning, Sentiment Analysis, Retail investor, Attention Herding, Social Network Spillover, Influencers