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Review of Financial Studies Vol. 37 No. 5 2024

Place Your Bets? The Value of Investment Research on Reddit’s Wallstreetbets

Daniel Bradley1; Jan Hanousek2; Russell Jame3; Zicheng Xiao1

1 University of South Florida , USA · 2 University of Memphis , USA · 3 Gatton College of Business, University of Kentucky , USA

Abstract

We examine the value of due diligence recommendations on Reddit’s Wallstreetbets (WSB) platform. Before the Gamestop (GME) short squeeze, recommendations are significant predictors of returns and cash-flow news. This predictability is eliminated post-GME. Post-GME, the fraction of reports emphasizing price-pressure or attention-grabbing stocks dramatically increases, and the decline in informativeness is concentrated in these reports. Similarly, retail trade informativeness is particularly strong following DD reports in the pre-GME period, but not post-GME. Our findings are consistent with the view that the Gamestop event altered the culture of WSB, leading to a deterioration in investment quality that adversely affected smaller investors.

DOI
10.1093/rfs/hhad098
Volume
37
Issue
5
Pages
1409-1459
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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