The Influence of r/WallstreetBets on GameStop stock price: A Behavioural Finance Perspective

Abstract

The aim of this paper is twofold. First to empirically explore the GameStop stock surge that occurred in January 2021 from the behavioral finance perspective and second to analyze the impact of retail investor sentiment expressed on Reddit's WallStreetBets using Natural language processing (NLP). By following a quantitative methodology which included correlation analysis, regression models, and Granger causality tests, this research seeks to prove the effect of retail investor sentiment in the the abnormal movements of GameStop stock prices. By integrating and applying key theories of behavioral finance Herding, Fear of Missing Out (FOMO), this research shows that there are clear patterns that are highly suggestive of profound correlations between social media-driven sentiment and how this amplifies these biases. The findings empirically demonstrate that sentiment on WallstreetsBets had an influence on Gamestop stock price and how the present biases can disrupt market normalcy and develop new viewpoints in a digitally impacted financial era.