Quiver Quantitative | WallStreetBets and Market Dynamics

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(9 February 2021) In 2020, retail-investor representation in the stock market surged by 4.7% to a record 19.6%. Spurred by zero-commission trading and COVID tailwinds, this booming segment of stock market traders has reshaped market behavior. As a result, forums for financial discussion and inspiration have exploded in growth as well. WallStreetBets (r/WSB) is one of the most popular among these forums, with over 1.65 million followers as of January 15, 2020. 

To investigate the relationship between WallStreetBets discussions and market activity at a stock-level, Quiver Quantitative has started scraping discussions on WallStreetBets and tracking how often different tickers are mentioned each day. Examples of GameStop Corp. and Advanced Micro Devices, which were among the most popular on r/WSB in recent weeks, can help to determine if there is a correlation between r/WSB discussions and share price. 

  • GameStop Corp. has experienced financial stress in recent years as the retail trends that had worked in its favor continue to decline globally. The company's total liabilities climbed 12.18% to $2.26bn from 2Q20 to 3Q20. Before May 5, 2020, r/WSB activity on GME had been dormant averaging 3.83 counts daily YTD. Shortly following this, several threads on r/WSB began to speculate on a GME recovery due to increased gaming activity and a large existing short position of 57 million shares. r/WSB counts would be amplified after an investment from activist investors and founder of Chewy (NYSE: CHWY), Ryan Cohen. Since May 5, 2020, GME has rallied 755.33% and the r/WSB discussion counts have averaged 55.34/day, a positive correlation coefficient at 0.688. 
  • In the early days of 1Q 2021, Advanced Micro Devices surpassed long-time competitor Intel in desktop CPU sales in addition to reporting record revenue of $2.8bn in 3Q20, representing 164% of growth from the same period five years ago. These factors have been reflected in the company's valuation as the stock hit a 52-week high of 99.23 on January 11, 2021. A comparison of r/WSB discussion counts and share price movements shows insignificant and for some periods even negative correlation. This occurred because once a stock reached a high enough market valuation the influence r/WSJ has on its price is reduced because it is weighted more.

While there is no universal method of identifying actionable insights when analyzing r/WSB, discussions on the forum can serve as useful estimations of retail interest. Companies that have had exponential growth with help from forums such as r/WSBs are more likely to transition to an organic growth phase with more institutional investors and less volume. Keeping an eye on rising companies on r/WSBs could help identify overlooked market opportunities.

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