What the favourite stocks of r/wallstreetbets have in common

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Our statistical model flags firms that look like meme stocks, but are not yet on Redditors’ radar screens

We then examined what these names had in common. So that the GameStop-duo did not dominate our analysis—it got 55% of all references—we modelled the chances of each stock in the Russell 3000 index receiving at least ten mentions. Despite treating names with ten references the same as those with 10,000, this still identified GameStop as the trendiest firm.

Short interest was tied to popularity only loosely. For every oft-discussed, heavily shorted firm, there was also a popular but rarely shorted name, or a widely shorted stock with few mentions. Trading volume and market capitalisation mattered more. The best predictor was the ratio of call options—which grant the right to buy a share at a set price, without obligation—to total shares. This tracks short-term bullish bets.

This model flags firms that look like meme stocks, but are not yet on Redditors’ radar screens. They include heavily shorted names like Discovery and SunPower ; the covid-19 vaccine firms Vaxart, Novavax and Moderna; and both sides of the merger of a division of DuPont with International Flavors and Fragrances.

Investors should not race to buy these names. We may have missed a variable that would explain why Redditors shun certain stocks. If Redditors themselves are buying up options on their favourite shares, they may keep ignoring others with heavy call volume. Posts on r/wallstreetbets could merely represent chatter about past volatility, rather than anticipating future trends. And meme stocks can suffer big dips: GameStop is down 80% from its peak.

Yet such concerns haven’t stopped Redditors from betting big. If you think investing is more about adrenalin than about owning a slice of a good business, dig in.

 

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