A social media alert system for meme stocks

The Gamestop (GME) short squeeze showed the world how investors aggregating on social media can have a powerful impact on financial markets. In this paper, an early warning system is introduced to detect potentially suspicious activity by users on social networks that could affect the stability of financial markets. We apply our approach to Reddit data and select both memes and non-meme stocks as case studies. The alert system is divided into two stages: the first is based on unusual activity on the social network, while the second aims to detect whether the movement is intended to coordinate users into a collective action. After conducting an event study analysis, we find that the alert system kicks in for meme stocks just before abnormal returns and higher volatility.