Author's own chart using data from Bloomberg and Reddit. Online discussion of GameStop versus investment returns for the stock taken at 30 minute intervals. What we found sends a warning signal to all meme stock investors: online chatter pushes prices up but can’t save investors when asset values start to collapse. Recent research I carried out with colleagues aimed to understand the role of Reddit in the GameStop share rally involved a textual analysis of 10.8 million comments on r/WallStreetBets and high-frequency GameStop prices. And while these new decentralised finance assets are very different to stocks, the way sentiment is formed about these assets on social media tends to be the same. Meme stock rallies have also boosted cryptocurrency products, such as stablecoins and non-fungible tokens – basically any assets for which hype has been built online. You’ve probably heard about other instances of assets popularised on social media of late, including cinema chain AMC and US retailer Bed Bath & Beyond. One of the more notable recent examples of a meme stock, retailer GameStop, saw its stock soar by more than 10,600% in 2021 following discussions by individual investors on r/WallStreetBets – a popular subreddit on the Reddit social media platform. The term meme stock was traditionally used to describe any share that receives a lot of attention on social media. And with recessions looming around the world, the danger is becoming even more acute. But while it might look like a fun game, there are real risks to investing in stocks and other financial products popularised on social media. Recent rallies in stocks popularised on social media have attracted increasing numbers of investors looking to these so-called “meme stocks” for quick returns.
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