CROWD WISDOM VERSUS WALL STREET: A COMPARATIVE ANALYSIS OF REDDIT-FAVOURED AND INSTITUTIONALLY ACCUMULATED EQUITIES OVER A THREE-MONTH HORIZON

Abstract

In January 2021, retail investors coordinating on Reddit’s r/WallStreetBets forced large price increases in heavily shorted stocks such as GameStop and AMC, imposing substantial losses on several hedge funds. The episode renewed an old question: can dispersed retail investors select stocks as well as professional money managers? Prior evidence is mixed and appears sensitive to the sample period and to whether returns are adjusted for risk. This paper presents a transparent, replicable research design that compares the three-month returns of (i) the five stocks most discussed on WallStreetBets and (ii) the five stocks with the largest net increase in institutional ownership according to SEC Form 13F filings. Both portfolios are formed on the same date, the 13F filing deadline, so that neither group has an informational timing advantage. Performance is measured by three-month holding-period returns, win rates and cross-sectional dispersion, and group differences are assessed with exact non-parametric and permutation tests suited to very small samples. The retail group earned a higher mean return (13.0% versus 6.8%) and a much higher median (20.0% versus 5.6%), but with far greater dispersion, and the difference is not statistically significant (Mann–Whitney p = 0.22; permutation p = 0.42). The study is explicitly exploratory: with five stocks per group, the results are descriptive evidence for one market window.