Alpha in Forums: Applying Regression Analysis to Reddit's r/WallStreetBets

Abstract

Beginning in early 2020, economic markets saw a massive influx of retail orders. In particular, a Reddit forum listed as “r/WallStreetBets” grew in popularity as its popular stock recommendations saw positive short-term returns in so-called “meme stocks” such as Gamestop (GME), AMC Entertainment Holdings (AMC), and BlackBerry (BB). This thesis first seeks to investigate whether “r/WallStreetBets” in fact has positive alpha over its most popular stock recommendations. Specifically, we will compare multiple regression trading strategies with different input parameters obtained from data-scraping Reddit posts. We take advantage of the forum's many metrics for evaluating a post, such as the total posts about company X in a day, the number of upvotes, the number of comments, and the post interaction level in the discussion section. We apply regression techniques to see how well these factors can predict the future stock price of popular tickers. By comparing the performance of these various portfolio strategies, we hope to shed more light on the market behavior of stocks with high retail interest, especially during the pandemic period. The results from this research will hopefully give a better sense of how irregular “meme stocks” behave during COVID-19 times.