IDEAS home Printed from https://ideas.repec.org/a/gam/jrisks/v13y2025i7p127-d1692540.html
   My bibliography  Save this article

Stock Market Hype: An Empirical Investigation of the Impact of Overconfidence on Meme Stock Valuation

Author

Listed:
  • Richard Mawulawoe Ahadzie

    (Tasmanian School of Business and Economics, University of Tasmania, Private Bag 84, Hobart 7001, TAS, Australia)

  • Peterson Owusu Junior

    (Department of Finance, School of Business, University of Cape Coast, Cape Coast 00233, Ghana
    School of Construction Economics & Management, Faculty of Engineering & the Built Environment, University of the Witwatersrand, Johannesburg 2000, South Africa)

  • John Kingsley Woode

    (Department of Finance, School of Business, University of Cape Coast, Cape Coast 00233, Ghana)

  • Dan Daugaard

    (Tasmanian School of Business and Economics, University of Tasmania, Private Bag 84, Hobart 7001, TAS, Australia)

Abstract

This study investigates the relationship between overconfidence and meme stock valuation, drawing on panel data from 28 meme stocks listed from 2019 to 2024. The analysis incorporates key financial indicators, including Tobin’s Q ratio, market capitalization, return on assets, leverage, and volatility. A range of overconfidence proxies is employed, including changes in trading volume, turnover rate, changes in outstanding shares, and alternative measures of excessive trading. We observe a significant positive relationship between overconfidence (as measured by changes in trading volume) and firm valuation, suggesting that investor biases contribute to notable pricing distortions. Leverage has a significant negative relationship with firm valuation. In contrast, market capitalization has a significant positive relationship with firm valuation, implying that meme stock investors respond to both speculative sentiment and traditional firm fundamentals. Robustness checks using alternative proxies reveal that turnover rate and changes in the number of shares are negatively related to valuation. This shows the complex dynamics of meme stocks, where psychological factors intersect with firm-specific indicators. However, results from a dynamic panel model estimated using the Dynamic System Generalized Method of Moments (GMM) show that the turnover rate has a significantly positive relationship with firm valuation. These results offer valuable insights into the pricing behavior of meme stocks, revealing how investor sentiment impacts periodic valuation adjustments in speculative markets.

Suggested Citation

  • Richard Mawulawoe Ahadzie & Peterson Owusu Junior & John Kingsley Woode & Dan Daugaard, 2025. "Stock Market Hype: An Empirical Investigation of the Impact of Overconfidence on Meme Stock Valuation," Risks, MDPI, vol. 13(7), pages 1-21, July.
    • Handle: RePEc:gam:jrisks:v:13:y:2025:i:7:p:127-:d:1692540
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-9091/13/7/127/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-9091/13/7/127/
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jrisks:v:13:y:2025:i:7:p:127-:d:1692540. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.