Graphic detail Stockmarkets

Sweet memes are made of this

What the favourite stocks of r/wallstreetbets have in common





Feb 6th 2021 | words 574

 

 

 

 

 

MOST INVESTORS were stunned when the share price of GameStop, a chain of video-game shops, rose by 2,265% from the start of January 13th to mid-morning on January 28th. But for denizens of the Reddit forum r/wallstreetbets, the surge capped a long campaign singing the firms praises. Share prices of other names touted on Reddit, like AMC (a cinema owner) and Express (a fashion retailer), also soared.

 

Media coverage of these movements has focused on a short squeeze: Redditors forcing investors who had bet against these firms to close positions. This does explain some of GameStops run-up. However, many other meme stocks, such as BlackBerry, a smartphone maker, were not heavily shorted. If Reddits madness has a method, short interest does not capture it.

 

A better measure of what sets Redditors hearts aflutter is a ranking on Stonks News, a website, of how often stocks have been cited on r/wallstreetbets since January 26th. Although novel, the list overrates firms whose tickers are also words, like ServiceNow (which trades as NOW) and The RealReal (REAL), because a post saying Its real now! will add to their tallies.

 

At our request, Venkatesh Thallam, the sites creator, has shared a stricter ranking. It counts only words that contain a $ or are in upper caseboth markers for tickers. After culling names like ProPetro (PUMP) and DMC Global (BOOM), we derived a recognisable list of current meme stocks.

 

We then examined what these names had in common. So that the GameStop-AMC duo did not dominate our analysisit got 55% of all referenceswe 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 optionswhich grant the right to buy a share at a set price, without obligationto 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 (of the Discovery cable-TV channel) and SunPower (a solar-panel maker); 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 havent 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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Economist | Sweet memes are made of this

 


 

 

 

Graphic detail Stockmarkets

Sweet memes are made of this

What the favourite stocks of r/wallstreetbets have in common





Feb 6th 2021 | words 574

 

 

 

 

 

MOST INVESTORS were stunned when the share price of GameStop, a chain of video-game shops, rose by 2,265% from the start of January 13th to mid-morning on January 28th. But for denizens of the Reddit forum r/wallstreetbets, the surge capped a long campaign singing the firms praises. Share prices of other names touted on Reddit, like AMC (a cinema owner) and Express (a fashion retailer), also soared.

 

Media coverage of these movements has focused on a short squeeze: Redditors forcing investors who had bet against these firms to close positions. This does explain some of GameStops run-up. However, many other meme stocks, such as BlackBerry, a smartphone maker, were not heavily shorted. If Reddits madness has a method, short interest does not capture it.

 

A better measure of what sets Redditors hearts aflutter is a ranking on Stonks News, a website, of how often stocks have been cited on r/wallstreetbets since January 26th. Although novel, the list overrates firms whose tickers are also words, like ServiceNow (which trades as NOW) and The RealReal (REAL), because a post saying Its real now! will add to their tallies.

 

At our request, Venkatesh Thallam, the sites creator, has shared a stricter ranking. It counts only words that contain a $ or are in upper caseboth markers for tickers. After culling names like ProPetro (PUMP) and DMC Global (BOOM), we derived a recognisable list of current meme stocks.

 

We then examined what these names had in common. So that the GameStop-AMC duo did not dominate our analysisit got 55% of all referenceswe 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 optionswhich grant the right to buy a share at a set price, without obligationto 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 (of the Discovery cable-TV channel) and SunPower (a solar-panel maker); 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 havent 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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