Behavioral Finance and Investor Sentiment: Empirical Evidence from Retail Trading Data on Meme Stocks, Options Volume, and Social Media Discourse

Abstract

The emergence of commission-free retail trading platforms, the accessibility of options and cryptocurrency markets to individual investors, and the coordinated behaviour visible on social media platforms have produced a period of exceptional retail investor influence on financial market dynamics. This paper presents a comprehensive empirical study of retail investor sentiment and behaviour during 2020-2024, drawing on trading data from Robinhood, Interactive Brokers, and other retail-focused platforms; options market data from OCC and CBOE; social media discourse from Reddit r/wallstreetbets, StockTwits, and X (formerly Twitter); and event studies of the January 2021 GameStop episode and subsequent meme stock activity. Empirical analysis identifies significant sentiment-driven return patterns, elevated options volume from retail participation with distinctive gamma dynamics, and coordinated attention effects producing measurable price impacts. Retail investor participation in Q1 2021 accounted for approximately 24 per cent of total U.S. equity trading volume by dollar value, up from approximately 12 per cent in 2019. Sentiment measures constructed from Reddit discourse achieved statistically significant predictive power for 1-day returns of small-cap heavily-shorted stocks (t-statistic 4.7). Options volume expansion by retail investors introduced measurable feedback effects through dealer gamma hedging. The paper contributes empirical evidence characterizing the changing structure of U.S. equity markets and informs regulatory and market design discussions.