Sentiment, Social Media, and Meme Stock Return Predictability

Abstract

In this paper, we explore the return predictability of meme stocks. We compile a time-varying, monthly list of meme stocks by conducting textual analysis of postings on the r/WallStreetBets forum on Reddit. We construct three meme stock sentiment indices based on Google search volume, Bloomberg Twitter and News sentiment. Our findings reveal that Google search sentiment significantly predicts meme stock returns over a medium prediction horizon of 3 to 7 days. Bloomberg news sentiment significantly predicts meme stock returns over a longer prediction horizon of 7 to 14 days, while Bloomberg Twitter sentiment's predictive power diminishes after 1 trading day. We posit that these variances in predictive timelines result from the different characteristics of the platforms' user bases and the speed at which they convey information.

Keywords: Meme Stocks, Reddit, GameStop, Investor Sentiment, Return Prediction