Can retail investors on social media platforms effectively target hedge fund short positions? We show that the disclosure of hedge fund short positions drives social media activity on WallStreetBets, which in turn precipitates price increases for heavily shorted stocks. The resultant short squeezes hurt hedge funds, which respond by shorting less aggressively, leading to prolonged overpricing in the stock market. In line with a causal interpretation, we find that the impact of social media on stock returns manifests around the publication dates for short sales, but not around the settlement dates, and attenuates during the trading restrictions imposed by Robinhood.

This paper demonstrates that economic narratives significantly price the cross-section of stocks. Using a vast dataset of more than 150k digital media sources since 2013, roughly 350 narratives are quantified, and corresponding narrative-mimicking, long-short portfolios are constructed using stock return narrative betas. Narrative-mimicking portfolios of recently trending narratives outperform those of descending attention by about 7% annually, controlling for standard risk factors. The cross-sectional narrative-beta-pricing is independent of past return and is neither significantly impacted by narrative coverage at the stock level nor earnings announcements. The results suggest that while investors respond to short-run narrative shocks as measured by narrative betas, they under-react to long-run narrative trends, manifesting narrative momentum returns.