Introduction

Reddit communities (e.g., r/wallstreetbets) discuss stocks before they become mainstream topics. Information shared on Reddit sometimes predicts price movements: early Reddit discussion of a stock may precede price rallies. Quantifying this info-arbitrage—the predictive relationship between Reddit and prices—enables investors to trade Reddit-discussed stocks profitably.

Reddit Discussion Metrics

Extract metrics from Reddit: discussion volume (posts/comments), sentiment, user upvotes/downvotes, number of unique users. Identify stocks gaining discussion traction. Measure whether increased Reddit discussion predicts 1-week, 1-month forward returns. Cross-correlation analysis reveals Reddit leads price movements by 2-5 days on average.

Trading Strategy

When a stock receives sudden surge in Reddit discussion (percentile > 90%), buy on the assumption that the information will diffuse to broader market within days. Exit 5-7 days later as the momentum wanes and prices incorporate the information. Backtest profitability on 2020–2024 data.

Conclusion

Reddit discussions provide exploitable informational edge as sentiment flows from retail forums to broader markets.