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

This paper develops an empirical and theoretical case for how `hype' among retail investors can drive large asset fluctuations. We use text data from discussions on WallStreetBets (WSB), an online investor forum with over eleven million followers as of February 2022, to demonstrate how the adoption of trading strategies spreads among retail investors. Using sentiment analysis, we document that WSB users adopt price predictions about assets (bullish or bearish) in part due to the sentiments expressed by their peers. We, furthermore, document evidence that asset discussions on WSB are self-perpetuating: an initial set of investors in a stock attracts a growing number of followers -- a pattern reminiscent of an epidemiological setting. Leveraging these findings, we develop a theoretical case for the impact of social dynamics among retail investors on asset prices. Our framework helps identify components of asset demand stemming from social dynamics, which we predict using WSB data. Our predictions explain significant variation in stock market activity; a consequential result is that weekly changes in sentiments and stock-specific discussions explain 16% of variance in the percent change of nominal trading volumes, within stocks. These findings emphasise the role that social dynamics play in financial markets, amplified by online social media