Predicting S&P 500 Changes: An Analysis of Reddit’s Influence and Market Cap Fluctuations

Abstract

Amid criticism that retail investors on Reddit do not accurately consider company fundamentals, the platform is exploding with opinions. Reddit’s recent IPO makes it clear that these retail investors are not going anywhere. The study uses inclusion in the S&P500 as a benchmark of company health and analyzes Reddit’s accuracy in predicting additions to the S&P500. Each addition was, on average, in the top 1.4% of companies when ranked by sentiment and popularity on Reddit. Reddit predicted 24% of additions, on average, without taking into account any of the parameters used to admit companies into the index. The study also modeled survival functions for companies that had market caps below the S&P500 market cap threshold in order to predict deletion timings. On average, for short term predictions, the model predicted about 87% of additions.