Review and Update of Social Media-Based Sentiment Signals

In previous research, we introduced a proprietary database of comments from the WallStreetBets sub-reddit. We used this database in two ways: to identify stocks that were seeing an uptick in mentions, and to build a proxy for sentiment around the overall market. We found that stocks seeing an uptick in mentions, coupled with an increase in trading activity, tended to underperform going forward[1]; we called this group of stocks the Reddit Alert list. We also found that the general level of sentiment among WallStreetBets users acted as an effective contra-indicator for the market[2]. In this note, we provide updates to the composition and performance of the Reddit Alert list and the Reddit-based sentiment indicator.

We start with our analysis of the Reddit Alert list. To review, for a stock to be added to the Reddit Alert list, it must undergo an increase in its mentions on WallStreetBets, along with a rise in trading activity around its shares or related options. As described in the initial research, stocks usually underperform the index after being added to the Reddit Alert List. Fig. 1 below shows the return (relative to the S&P 500) for the typical stock after it has been added to the Reddit Alert list. Stock...

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