Social media attention and retail investor behavior: Evidence from r/wallstreetbets

Sonja Warkulat and Matthias Pelster

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: This paper studies the influence of Reddit social media attention on investor risk-taking and welfare using individual trading data from a large trading platform. We show that attention generated on the subreddit r/wallstreetbets (WSB) spurs uninformed trading, also in short positions. WSB attention increases overall risk levels as investors trade riskier stocks and allocate larger portfolio shares to new positions. WSB attention significantly reduces holding period returns (HPRs). Positions created when WSB attention is at its highest realize −8.5% HPRs, while the average HPR across all investments is positive. Investment decisions of retail investors are more likely to be based on emotional responses to angry and disgusted user contributions on Reddit rather than analyst investment advice.

Keywords: Risk-taking; Investor welfare; Social media; Reddit; Emotions; Natural-language-processing (search for similar items in EconPapers)
JEL-codes: G11 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006537

DOI: 10.1016/j.irfa.2024.103721

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