From Main Street to Wall Street: Analysis of Retail Trading Power After The GameStop Squeeze
DOI:
https://doi.org/10.47611/jsrhs.v12i4.5382Keywords:
Assets Pricing, Market Microstructure, Market Power, Market Manipulation, Pump-and-dump scheme, Retail Power, Sectors, Multi-Caped Stocks, Social Media, Reddit, Long Term Study, Security and Exchange Commission, GameStop, GMEAbstract
Social media can be used as a tool to help investors gather and disseminate information about the stock market. However, this tool also presents opportunities for market manipulation through mass coordination that many retail traders use to gain an advantage over more prominent market participants. Analyzing millions of mentions sent on the social media platform Reddit in r/WallStreetBets, we found that an abnormally higher number of mentions is associated with a price and volume increase of the security. Examining these dependent variables through a descriptive and correlational study through the years, along with mentions in various sized companies, we found that smaller to larger-sized companies retained and increased some retail influence through the evolution of the pump-and-dump tactics, while the general market (ETFs) had zero to no real longterm retail influence. Our findings indicate an evolution to modern-day market structure as retail traders have increased long-term power in the market, though limited in their effect on the whole market
Downloads
References or Bibliography
Ahmed, S. I. (2021). Explainer: What is a gamma squeeze and how did it drive up AMC’s stock price? Reuters. https://www.reuters.com/legal/litigation/what-is-gamma-squeeze-how-did-it-drive-up-amcs-stock-price-2021-06-04/
Anand, A., & Pathak, J. (2022). The role of Reddit in the GameStop short squeeze. Economics Letters, 211(0165-1765), 110249. https://doi.org/10.1016/j.econlet.2021.110249
Chen, Hailiang & De, Prabuddha & Hu, Yu & Hwang, Byoung-Hyoun. (2011). Sentiment revealed in social media and its effect on the stock market. 25 - 28. 10.1109/SSP.2011.5967675.
De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Noise Trader Risk in Financial Markets. Journal of Political Economy, 98(4), 703–738. http://www.jstor.org/stable/2937765
Glosten, L. R., & Milgrom, P. R. (1985b). Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14(1), 71–100. https://doi.org/10.1016/0304-405x(85)90044-3
Kyle, A. S. (1985). Continuous Auctions and Insider Trading. Econometrica, 53(6), 1315–1335. https://doi.org/10.2307/191321
Lyócsa, Š., Baumöhl, E., & Výrost, T. (2021). YOLO trading: Riding with the herd during the GameStop episode. Finance Research Letters, 102359. https://doi.org/10.1016/j.frl.2021.102359
Mao, Y., Wei, W., Wang, B., & Liu, B. (2012). Correlating S&P 500 stocks with Twitter Data. https://doi.org/10.1145/2392622.2392634
McCrank, J. (2021). Short-selling under spotlight in GameStop hearing. Reuters. https://www.reuters.com/article/us-retail-trading-congress-shorting/short-selling-under-spotlight-in-gamestop-hearing-idUSKBN2AJ026ruft6y
Panda, G. (2021). GameStop Stock: Don’t Invest Into Short Squeezes (NYSE:GME) | Seeking Alpha. Seekingalpha.com. https://seekingalpha.com/article/4461445-gamestop-dont-invest-into-short-squeezes
Pedersen, L. H. (2022). Game on: Social networks and markets. Journal of Financial Economics, 146(3). Science Direct. https://doi.org/10.1016/j.jfineco.2022.05.002
Renault, T. (2017). Market Manipulation and Suspicious Stock Recommendations on Social Media. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3010850
Smith, A. (2021). The Reddit revolt: GameStop and the impact of social media on institutional investors - The TRADE. Www.thetradenews.com. https://www.thetradenews.com/the-reddit-revolt-gamestop-and-the-impact-of-social-media-on-institutional-investors/
Staff Report on Equity and Options Market Structure Conditions in Early 2021. (2021). https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf
Weiss, R. (2023). Top WallStreetBets Stocks to Buy - MarketBeat. Www.marketbeat.com. https://www.marketbeat.com/stocks/trending/wallstreetbets/
Zheludev, I., Smith, R., & Aste, T. (2014). When Can Social Media Lead Financial Markets? Scientific Reports. https://doi.org/10.1038/srep04213
Published
How to Cite
Issue
Section
Copyright (c) 2023 Alexander Simpson
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright holder(s) granted JSR a perpetual, non-exclusive license to distriute & display this article.
