Herding in Financial Markets: Evaluating Leadership Signal Mechanisms Behind Meme Stock Phenomena on Social Media Público

Abstract

This study investigates leadership signals based on r/WallStreetBets data from August 2020 to September 2021, and then supplements it with a between-group experimental design to draw causal inference between one leadership signal (leader popularity) and audience tendency in conducting herding behaviors. The observational study reveals statistically significant outperformance (benchmark Russell 1000 and Fama French model) of portfolios derived from two leadership signal mechanisms that indicate the appearance of herding behaviors based on leadership signals among r/WallStreetBets retail investors during that time period. However, in spite of the initial hypothesis of drawing causal inference between leadership popularity and people’s herding tendency in the experimental setting, we fail to find statistically significant results and surprisingly find opposite correlations compared to our initial hypothesis. This may be the result of several contributing factors, including, but not limited to, the timing of the data, attention-driven stock picking tendencies, and source credibility evaluations, that are different between r/WallStreetBets retail investors and our experiment participants. 

Table of Contents

Introduction..................................................................................................................................... 1

Background about r/WallStreetBets and Meme Stocks.................................................................. 3

Literature Review............................................................................................................................ 4

2.1 Financial Herding Behavior (Informational Cascade) as a Phenomena ..............................................4

2.2 Identifying Potential Roots .................................................................................................................5

2.3 Past Studies, Factors & Solutions........................................................................................................5

2.4 Looking forward: the Study at Hand ...................................................................................................7

Methodology ................................................................................................................................... 9

3.1 Observational Study.............................................................................................................................9

3.1.1 Data Acquisition ...............................................................................................................................9

3.1.2 Data Analysis Plan............................................................................................................................9

3.2 Experimental Study: A Survey Design..............................................................................................14

3.2.1 Participants .....................................................................................................................................14

3.2.2 Procedure ........................................................................................................................................14

3.2.3 Data Analysis..................................................................................................................................16

Results........................................................................................................................................... 17

4.1 Observational Study...........................................................................................................................17

4.1.1 Preliminary Analysis: WallStreetBets Signals Returns vs. Russell 1000.......................................17

4.1.2 Primary Analysis: Looking for WallStreetBets Strategies’ Alpha .................................................17

4.1.3 Secondary Analysis: Correlations Between Post Sentiment/Redditor Karma Factor with 5 Fama French Factors .........................................................................................................................................20

4.2 Experimental Study ...........................................................................................................................20

4.2.1 Preliminary Analysis: Demographic info of participants ...............................................................21

4.2.2 Primary Analysis: Investment Decisions - Amount as Dependent Variable..................................21

4.2.3 Secondary Analysis: Explore other reactions as DV besides investment amount..........................23

Discussion ..................................................................................................................................... 25

5.1 Discussion about the Observational Study ........................................................................................25

5.2 Discussion after looking at the Experimental Study..........................................................................26

Design Considerations & Future Directions ................................................................................. 30

6.1 Strength and Limitations....................................................................................................................30

6.2 Future Directions ...............................................................................................................................30

Conclusions................................................................................................................................... 32

Works Cited .................................................................................................................................. 33 Appendix....................................................................................................................................... 37 

About this Honors Thesis

Rights statement

• Permission granted by the author to include this thesis or dissertation in this repository. All rights reserved by the author. Please contact the author for information regarding the reproduction and use of this thesis or dissertation.

School	Emory College
Department	Quantitative Science
Degree	B.S.
Submission	Honors Thesis
Language	English
Research Field	Economics, Finance Economics, Theory Statistics
Palavra-chave	herding effect meme stock natural language processing
Committee Chair / Thesis Advisor	Sutherland, Joseph, Emory University
Committee Members	Lanier, Kelli, Emory University Bell, Mark, Emory University Jacobson, Jeremy, Emory University

Última modificação

Primary PDF

Thumbnail	Title	Date Uploaded	Actions
	Herding in Financial Markets: Evaluating Leadership Signal Mechanisms Behind Meme Stock Phenomena on Social Media ()	2022-04-11 16:25:59 -0400	Press to Select an action Download

Supplemental Files

Thumbnail	Title	Date Uploaded	Actions