LLM-Based vs. Lexicon-Based Sentiment Signals for Tail-Risk Detection in Meme Stocks

Title:LLM-Based vs. Lexicon-Based Sentiment Signals for Tail-Risk Detection in Meme Stocks

Abstract:This paper presents an empirical comparison of lexicon-based and Large Language Model (LLM)-based sentiment analysis for extracting market-relevant signals from social media discourse in highly volatile equity markets. Using Reddit data from r/WallStreetBets and focusing on meme stocks (GME, AMC, NOK), we construct time-aligned sentiment indicators and evaluate their relationship with market returns, with particular attention to extreme positive return events in the upper tail of the return distribution. The LLM-based approach generates multidimensional sentiment representations capturing emotional polarity, bullishness, sarcasm likelihood, and topical relevance, whereas the baseline relies on the VADER lexicon-based model. We evaluate both approaches using lead/lag correlation analysis, OLS regression, ROC-AUC-based directional classification, and a quantile-based early-warning framework. The results indicate that LLM-derived indicators provide a richer multidimensional representation and exhibit stronger asset-specific statistical structure than the lexicon-based baseline. However, their relationship with market movements remains heterogeneous across assets, suggesting that increased linguistic expressiveness does not necessarily translate into stable forecasting performance in retail-driven volatility regimes.

Computation and Language (cs.CL)

arXiv:2607.24072 [cs.CL]

(or arXiv:2607.24072v1 [cs.CL] for this version)

https://doi.org/10.48550/arXiv.2607.24072 Focus to learn more arXiv-issued DOI via DataCite (pending registration)

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