Date of Graduation
Bachelor of Science in Business Administration
The world of finance is rapidly evolving - for better or for worse. The introduction of social media in sentimental stock market trading, and new brokerage apps, combined with the new resurgence of retail investors, has led to some interesting results. These new factors in the stock market have challenged the status quo of the stock market. A group of retail investors has led this change on a Reddit forum known as /r/WallStreetBets
In early January 2021, a group of retail investors collaborated a short squeeze on GameStop stock, creating an attack against the hedge funds on a popular Reddit trading form called /r/WallStreetBets (Faris, 2021). A short squeeze occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall to buy it to forestall even more significant losses. The retail traders on /r/WallSteetBets realized that they would have enough leverage to successfully execute this short squeeze against the hedge funds if they combined their buying power. The brokerage of choice for these retail traders was Robinhood. This 0% commission brokerage firm was top-rated at the time for its simplicity and low barrier for entry on investing.
The short squeeze made hedge funds lose a vast amount of profit. By January 28, 2021, Melvin Capital, an investment fund that heavily shorted GameStop, lost 30% of its value since the start of 2021 (Stevens, 2021). This communication to execute /r/WallStreetBets short squeeze occurred on Reddit, a popular social media and news website. The GameStop short squeeze became the first time that many retail traders were able to formulate a plan of this magnitude, and they were able to formulate their plan with the power of social media. It also should be noted that I participated in the buying of GameStop stock during this time.
There are still many questions surrounding the short squeeze that was orchestrated by /r/WallStreetBets. To make more informed decisions on regulating these kinds of events, it is crucial to understand the underlying factors and changes in the finance world that lead to this short squeeze on GameStop by the retail traders on /r/WallStreetBets.
GameStop, service learning, social media, stock market, trading stock
Burnette, R. (2021). What Were the Factors that led to the GameStop Short Squeeze?. Information Systems Undergraduate Honors Theses Retrieved from https://scholarworks.uark.edu/isysuht/6