The dynamics of the Reddit collective action leading to the GameStop short squeeze

TL;DR

This study investigates how Reddit's WallStreetBets activity shaped the GameStop short squeeze by combining high-temporal-resolution analyses (Granger causality, Detrended Cross-Correlation Analysis, and Convergent Cross Mapping) with multivariate autoregressive modeling. It finds that Reddit discussions anticipated trading-volume surges and that posted collective positions scaled with market capitalization, rising about two weeks before the squeeze. The results delineate three online-behavior phases—Discussion, Action, and Visibility—where the influence shifts from Reddit-led coordination to broader Twitter-driven visibility. Together, these findings illuminate how online social platforms can catalyze coordinated financial action and influence real-world market dynamics, while acknowledging limitations in establishing strict causality in a single-case study.

Abstract

In early 2021, the stock prices of GameStop, AMC, Nokia and BlackBerry experienced dramatic increases, triggered by short-squeeze operations that have been largely attributed to Reddit's retail investors. Here, we shed light on the extent and timing of Reddit users' influence on the GameStop short squeeze. Using statistical analysis tools with high temporal resolution, we find that increasing Reddit discussions anticipated high trading volumes. This effect emerged abruptly a few weeks before the event but waned once the community gained widespread visibility through Twitter. Meanwhile, the collective investment of the community quantified through posts of individual positions, closely mirrored the market capitalization of the stock. This evidence suggests a coordinated action of users in developing a shared financial strategy through social media--targeting GameStop first and other stocks afterward. Overall, our results provide novel insights into the role of Reddit users in the dynamics of the GameStop short squeeze.

Figures (21)

• Figure 1: The correlation between Reddit activity and GameStop market indicators.a) Daily occurrences of the "GME" ticker in conversations on WSB (orange, y-right axis) and Twitter (lightblue, y-right axis), along with the daily trading volume of the GME stock (blue, right y-axis) and its daily closing price (green, left y-axis). The vertical gray dotted line marks January 13th, identified as the WSB-led action's start (see subsequent sections), while the dashed line marks January 27th, when Elon Musk's Tweet broadly publicized the action. To improve the chart's clarity, we applied a 5-day moving average to each signal and normalized the trading volume, Reddit and Twitter signals by their mean (we remark these modifications are not employed in the analysis). b) Values of detrended variance for price (green), trading volume (blue) and Reddit activity (red) signals, and values of detrended covariance for the pairs price / trading volume (purple), price / Reddit activity (pink), trading volume / Reddit activity (yellow), as a function of the time window considered. Inset: Detrended Cross Correlation Coefficients for paired combinations of GME signals (same color schemes of the main panel). The shaded gray area represents the 95% confidence interval for correlation values obtained from pairs of independent signals. c) Daily value of the WSB posted collective position on GME (orange, y-right axis) and GME Market Capitalization (blue, y-left axis). Inset: Distribution of values of users' individual position on GME (red) alongside the Log-Normal fit (grey line, $\mu = 4.96$, $\sigma = 3.63$).
• Figure 2: Reddit activity anticipates trading volume during the short squeeze. In all the following subplots the vertical gray dotted line indicates the beginning of the Action phase (13 January 2021), whereas the vertical gray dashed line corresponds to the Tweet by Elon Musk (27 January 2021) that brought the squeeze to the public attention. Triangles correspond to p-values $<0.05$, squares to p-values $<0.1$. Each point is computed considering time series spanning the 15 preceding days. a) Granger Index capturing the predictive power of a signal on another (with a lag of 1 hour) for the following pairs: Trading Volume-to-Reddit (blue), Reddit-to-Trading Volume (red), Trading Volume-to-Twitter (gray) and Reddit-to-Twitter (yellow). b) Coefficients of the Granger Model predicting Trading Volume, capturing the size effects of Reddit (magenta) and Trading Volume (green) activities. c) Each panel shows the coefficients of a Multivariate Vector Autoregressive Model predicting Twitter (top), Reddit (middle), and Trading Volume (bottom) activities, corresponding to antecedent values of Reddit (solid orange), Twitter (dashed lightblue), and trading volume (dotted blue).
• Figure 3: BB, AMC, NOK and the role of GME-engaged users. In all the following subplots the vertical gray dotted line indicates the beginning of the GME Action (13 January 2021), whereas the vertical gray dashed line corresponds to the Tweet by Elon Musk (27 January 2021). Triangles correspond to p-values $<0.05$, squares to p-values $<0.1$.a) (top) Rank chart of stock tickers on WSB based on their average daily occurrence within each 15-days window. a) (bottom) Cumulative number of occurrences of a given stock on WSB. b) Granger Index for possible combinations of BB, NOK, AMC signals. c) Coefficients of the Multivariate Vector Autoregressive Model for BB-related activity on Reddit (top panel) and BB trading volume (bottom panel), related to the Reddit (solid orange) and trading volume (dashed blue) signals. d) Overlap index for pairs of stocks, computed over a 5-day window with a one-day shift, measuring the proportion of users discussing each pair of stocks. We observe in both panels an increasing overlap after the starting of the GME rally. e) Jaccard index for pairs of stocks, computed over a 5-day window with a one-day shift, measuring the proportion of users discussing both pair of stocks.
• Figure S1: Detrended Cross Correlation coefficients for the following combinations of signals: price / trading volume (light blue), price / Reddit activity (pink), trading volume / Reddit activity (purple), for BB (panel a), AMC (panel b) and NOK (panel c).
• Figure S2: Detrended Variances for each signal: price (red), trading volume (blue) and Reddit activity (green); detrended covariances for their paired combinations (same color-scheme of Figure \ref{['fig_sm_dcca']}); for BB (panel a), AMC (panel b) and NOK (panel c).