Live Chat Forums Associated With Higher-Returning Stocks

Live (synchronous) group chats help investors find stocks likely to outperform and are more informative than investing forums that are geared to individual posts and comments (asynchronous).

Forums about the markets and securities are not a new phenomenon; however, live chatting has seen a rise in popularity as social media has become more utilized. A study compared the returns achieved using Discord, a synchronous live chat platform, to performance using Reddit’s WallStreetBets, an asynchronous commenting platform.

Popular stocks tended to stay the most popular. A size element was observed, however. Popular stocks with higher mentions tended to be both larger and stayed popular for longer than popular stocks with lower mentions.

A positive relationship was identified between the popularity of stocks mentioned in live group chats and future abnormal trading volume, volatility and returns. Abnormal volume was stronger among smaller companies than big companies—with an increase for popular big companies of about 60% versus a 20% increase for smaller companies.

Cumulative Returns of Portfolios Composed of Popular Stocks

Higher returns were found to be driven by a consistent daily popularity versus the specific day the stock becomes popular on the platform. “The steady increase in returns over longer horizons suggests a significant upward drift. For example, holding for 30 days increases the effect from 0.3% to 4.0%. When holding for more than two months, the buy-and-hold return for popular stocks is 6.6% higher than those not popular,” observed the study’s author.

An equal-weighted portfolio of popular stocks on Discord outperformed both an equal-weighted and a value-weighted portfolio of popular stocks on WallStreetBets. The Discord portfolio was tilted toward small-cap and growth stocks.

The study used data from Discord and Reddit between the periods of January 2020 and January 2021. Its results suggest that investors who use social media to generate investing ideas may find benefit in using synchronous platforms, such as Discord. Investors should take note of the short time frame and understand the risk of the study’s findings potentially changing if a longer time horizon is used.

“Social Media Group Investing” by Chaehyun Pyun; University of Georgia Terry College of Business, November 17, 2021.