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Social contagion and asset prices: Reddit’s self-organised bull runs

Semenova, Valentina and Winkler, Julian (2021): Social contagion and asset prices: Reddit’s self-organised bull runs.

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Can unstructured text data from social media help explain the drivers of large asset price fluctuations? This paper investigates how social forces affect asset prices, by using machine learning tools to extract beliefs and positions of `hype' traders active on Reddit's WallStreetBets (WSB) forum. We empirically document that sentiments expressed by WSB users about assets' future performances (bullish or bearish) are in part due to the sentiments of their peers and past asset returns. Our stylized model shows that information assimilation from peers can help explain return predictability and reversals, as well as bubble dynamics. The paper directly estimates the effect of WSB activity on asset prices. We document: that retail trader demand follows WSB discussions through using Trade and Quote data, the predictability of prices from retail trader discourse, the amplified market impact of idiosyncratic investor sentiment from viral content online, and the greater exposure of hype investors to bubbles in the markets.

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