This Is Not Financial Advice: Investigating The Predictive And Reactive Nature Of WallStreetBets Sentiment

Sammanfattning

In this paper, we develop a novel sentiment index (WSB) based on the frequency of bullish and bearish words occurring in finance-related comments on the WallStreetBets subreddit. We find that when WSB is high, same-day returns for the market, high minus low systematic risk portfolios and meme stock portfolios are low, and have been low for the three previous days. We find no evidence that WSB causes returns in the portfolios explored. Instead, WSB is found to be Granger caused by prior market and meme stock portfolio returns. When WSB is high, the VIX is likely to have increased in the previous days as well, suggesting that when markets expectations on future volatility is, and has been, high, sentiment is decreased on WallStreetBets. We further find a bilateral Granger causation relationship between WSB and VIX.