WallStreetBets: Assessing the Collective Intelligence of Reddit for Investment Advice

Abstract

The WallStreetBets (WSB) community on Reddit gained prominence for its role in the GameStop saga and the resulting meme stock phenomenon. Concurrently, this has boosted the popularity of finance-related communities on Reddit, with the top five totalling more than 25 million subscribers at the time of writing. However, little is known about the reliability of the advice disseminated in these communities, which is a relevant research question within the field of social computing. In this study, we examine the collective intelligence of WSB, the largest and most active subreddit focused on the stock market, and assess its potential as a democratizing force in enabling access to financial knowledge. First, we establish that WSB meets several criteria to be considered a collectively intelligent crowd. Then, we test our hypothesis quantitatively by analyzing Reddit posts and financial data from a 28-month period to evaluate how successful an investor relying on WSB recommendations could have been. We define a portfolio of WSB’s most discussed stocks which shows significant growth, outperforming the S&P 500 index over the reviewed time frame. We further find that following buy signals at the time they are posted on WSB leads to positive outcomes over the long run, and that the GameStop hype merely amplified previously existing characteristics. The WSB portfolio underperforms the broader market during downturns, but recovers more quickly and achieves higher profits afterwards. The results of our work can be generalized to comparable finance-related communities, indicating that their original purpose of leisurely entertainment has already been extended towards tangible real-world value.