The surprising science behind Reddit taking on GameStop
Amateur investors from the Reddit forum WallStreetBets sent professional short traders into a panic earlier this year when they went all-in on a stock that was otherwise doomed, GameStop. New research has revealed that the trend may be partly thanks to the exhibitionism of risk-taking behaviour.
A study from Sydney University's School of Economics allowed individuals in two age groups - 12 to 17-year-olds and 18 to 24-year-olds - to choose a fixed amount of money received with certainty or a risky lottery, which could result in a higher or lower payoff with known chances, either in private or in the presence of an adolescent observer.
The research found that the 18 to 24-year-olds tended to choose the riskier option when they were being watched.
This financial exhibitionism can be equated to the show and tell culture on Reddit, where users get kudos from their peers for taking risky bets.
"We know that young adults generally have a greater appetite for risk," says study lead author Professor Agnieszka Tymula.
"Our study lends further credence to the notion that this appetite grows when in the company of peers."
By contrast, 12 to17-year-olds' behaviour was unaffected by peer observation in the study.
"We cannot definitively conclude whether it is chronological age, graduating from high school to university, the recruitment method, or something else not captured by our study that accounts for the difference between older and younger adolescents," says study co-author Xueting Wang.
Meanwhile, trading and wealth management infrastructure fintech OMG (Openmarkets Group) has analysed the share price of 12 so-called meme stocks, revealing that every single one of them has lost value since they were first identified as such.
Those include 88 Energy (88E), Creso Pharma (CPH), Douugh (DOU), Lake Resources (LKE), Brainchip (BRN), Vulcan Energy (VUL), Digital Wine Venture (DW8), Zip Co (Z1P), Cirralto (CRO), Mesoblast (MSB), Latin Resources (LRS), and GME Resources (GME).
The biggest losers over 3 months were 88 Energy, Douugh, and Digital Wine Ventures, which fell 71%, 50.7%, and 50.3% respectively.
"More money than ever is hitting unadvised and inexperienced investors in particular, driving them to resort to unreliable and unaccountable sources like online forums," says OMG CEO Ivan Tchourilov.
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