Social Interactions and Lottery Stock Mania
We find that social interactions are associated with stocks becoming more lottery-like and with greater investor overoptimism about the lottery characteristic. Heightened social media activity about a stock positively predicts the probability of an extreme daily price run-up, a lottery event. Lottery event stocks subject to more extensive social media discussions subsequently experience greater retail buying pressure—particularly from Robinhood users—followed by lower returns. Moreover, lottery stocks of firms headquartered in more socially connected counties experience lower subsequent returns. Our findings are consistent with theories in which social interactions stimulate investor excitement and asset price bubbles.
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