Your Money

Memes clouding Reddit investors’ judgment on stocks

New study discovers strong link between online gags and trading patterns

A new study explores the influence of social media memes on Reddit investors' behaviour. Photograph: Amy Lombard/TheNew York Times
A new study explores the influence of social media memes on Reddit investors' behaviour. Photograph: Amy Lombard/TheNew York Times
Proinsias O'Mahony's picture
Proinsias O'Mahony
Mon Jun 03 2024 - 06:09

Memes are not a harmless, childish distraction; they have a real impact on investor behaviour and could be clouding the judgment of Reddit investors.

A new study, Are Memes a Sideshow: Evidence from WallStreetBets, finds a clear link between online meme activity and trading behaviour.

Memes are used as a humorous coping mechanism, with meme activity surging when companies issue disappointing earnings. Memes “lead to a surge in virality and engagement in the discussion” of individual stocks.

Highly-memed stocks get more social media activity, “often encouraging investors to hold on to them”. Retail investors place fewer sell orders of highly-memed stocks, delaying the market’s response to bad news.

READ MORE

Forget faking news articles to pump and dump stocks. All you need these days is a catchy meme.

READ NEXT