Self-induced consensus of Reddit users to characterise the GameStop short squeeze

TL;DR

This paper analyzes Reddit discussions around the GameStop short squeeze, showing early engagement signals and proposing a model of opinion dynamics that explains how collective consensus can lead to market phenomena.

Contribution

It introduces a novel opinion dynamics model inspired by Reddit data to explain self-organized collective actions like the GameStop short squeeze.

Findings

Reddit engagement increased significantly before the short squeeze.

The model exhibits a phase transition from diverse to consensus opinions.

The model qualitatively matches the stock price surge during the event.

Abstract

The short squeeze of GameStop (GME) shares in mid-January 2021 has been primarily orchestrated by retail investors of the Reddit r/wallstreetbets community. As such, it represents a paramount example of collective coordination action on social media, resulting in large-scale consensus formation and significant market impact. In this work we characterise the structure and time evolution of Reddit conversation data, showing that the occurrence and sentiment of GME-related comments (representing how much users are engaged with GME) increased significantly much before the short squeeze actually took place. Taking inspiration from these early warnings as well as evidence from previous literature, we introduce a model of opinion dynamics where user engagement can trigger a self-reinforcing mechanism leading to the emergence of consensus, which in this particular case is associated to the success of the short squeeze operation. Analytical solutions and model simulations on interaction networks of Reddit users feature a phase transition from heterogeneous to homogeneous opinions as engagement grows, which we qualitatively compare to the sudden hike of GME stock price. Although the model cannot be validated with available data, it offers a possible and minimal interpretation for the increasingly important phenomenon of self-organized collective actions taking place on social networks.