Place Your Bets? The Market Consequences of Investment Research on Reddit's Wallstreetbets
63 Pages Posted: 22 Mar 2021 Last revised: 3 Nov 2021
Date Written: March 15, 2021
We examine the market consequences of due diligence (DD) reports on Reddit’s Wallstreetbets (WSB) platform. Over the 2018-2020 sample, we find that DD recommendations are significant predictors of one-month ahead returns, earnings forecast revisions, and earnings surprises. In addition, user comments are incrementally useful for predicting returns, and small retail trade informativeness increases following DD reports. However, all of these benefits reverse in the first half of 2021. Our findings are consistent with the surge in new WSB users following the Gamestop short squeeze significantly deteriorating its investment quality and usefulness for smaller investors.
Keywords: Reddit, Wallstreetbets, WSB, retail trading, social media, Gamestop, AMC
JEL Classification: G20, G23
Suggested Citation: Suggested Citation