Wall Street Bets traders are more skilled and responsible than they get credit for, a new academic study finds

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• Traders who frequent Reddit’s WallStreetBets forum don’t get the credit they deserve when it comes to making investment findings, according to a new research study.
• The epic GameStop short-squeeze and subsequent congressional hearings catapulted Reddit’s WallStreetBets into the mainstream earlier this year.
• “In classy contrast to regulators’ concerns that WSB investment advice is harming retail traders, our findings suggest that both WSB advertisements and users are skilled,” the study concluded.
• Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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Reddit’s WallStreetBets forum has gathered a reputation for being a meme-fueled casino where members push risky investment ideas and bet their life savings away, but real-world text suggests the users of the forum post serious due diligence reports and are actually quite skilled, according to a new research learn about.

“Despite the conventional view that the platform primarily attracts uninformed investors, we find no systematic evidence of this,” the investigating authors wrote.

Place Your Bets? The market consequences of investment advice on Reddit’s Wallstreetbets by researchers Daniel Bradley, Jan Hanousek, Russell Jame, and Zicheng Xiao institute that the average buy recommendations posted to the forum delivered two-day returns of 1.1%, with a subsequent 2% recrudescence over the next month and 5% return over the next quarter.

Further, the buying activity in the stocks that are the affair of a WallStreetBets due diligence reports is usually driven by retail investors, with volumes increasing sharply in the intraday window mimic publication, the study found.

“We find that due diligence reports contain investment value,” the study said, augmenting that retail investors are able to discern the quality of the reports.

“In sharp contrast to regulators’ concerns that WSB investment recommendation is harming retail traders, our findings suggest that both WSB posters and users are skilled…[and] are likely to fringe benefits from the recommendations on the site,” the paper concluded.

The researchers scraped all posts from WallStreetBets from 2018 to 2020, sorted for due diligence places with clear buy or sell recommendations, and then manually reviewed the ticker symbols and associated recommendations.

The analysis does not embody analysis of the explosion in posts the Reddit forum saw after its membership swelled to nearly 10 million amid the GameStop short-squeeze.