Gamestop on market street
Gamestop stock short squeeze: reddit traders take gme on a
Alexander Kurov has disclosed no relevant affiliations beyond their academic appointment, such as working for, advising, owning shares in, or receiving support from any business or organization that would benefit from this article.
Shares of GameStop and other companies or properties that had recently risen in value are now plummeting. Although I pity the many investors who will almost certainly lose a lot of money, the stock market’s return to Earth is actually a positive thing – if you want to avoid adding financial meltdown to the long list of crises that the United States is experiencing.
The explanation for this has to do with what financial markets are – and aren’t – as well as what happens when stock and other security values deviate from the intrinsic value of the assets they’re supposed to represent.
As a finance professor who studies how markets react to new knowledge, I believe it is critical to keep security prices and fundamentals closely linked. When that keeps happening, a market crash could be just around the corner.
How gamestop exposed the dark world of market
A short squeeze of the stock of American video game retailer GameStop (NYSE: GME) and other stocks occurred in January 2021, resulting in significant financial losses for some hedge funds and substantial losses for short sellers. About 140 percent of GameStop’s public float had been sold short, and the scramble to fill those positions as the price soared pushed it even higher. Members of the subreddit r/wallstreetbets, an Internet forum on the social news platform Reddit, were the ones that started the short squeeze, but a number of hedge funds also got involved. The short squeeze peaked on January 28, when the retailer’s stock hit a pre-market value of nearly US$500 per share, nearly 30 times the $17.25 price at the start of the month. Many other heavily shorted shares saw their prices rise as well.
Some brokerages, especially app-based brokerage services like Robinhood, halted the purchase of GameStop and other securities on January 28, citing an inability to post adequate collateral at clearing houses the next day to execute their clients’ orders.
[two] This decision drew widespread condemnation and allegations of market manipulation from influential politicians and business leaders from both parties. Hundreds of class action cases have been brought against Robinhood in US courts, and a congressional hearing on the incident was held by the US House Committee on Financial Services. The overall market capitalization of cryptocurrencies and metal futures increased as a result of brokerages ceasing to buy GameStop and other securities.
Gamestop: the hottest stock on wall street is a struggling
No one expects another GameStop, where a group of small-time investors helped lift a distressed company’s stock 1,000 percent in two weeks, to happen again. However, if those smaller investors remain linked on social media forums and regulators do not adjust the rules to hinder them, the methods they used can be used again and again.
After all, these smaller players, dubbed “retail investors” in the industry to distinguish themselves from hedge funds and other large corporations, use many of the same strategies as the professionals. And if retail investors continue to wield more power, some stocks would likely experience sharper fluctuations than they would have otherwise, although not to the same extent as GameStop.
GameStop’s crazy ride has some professional investors bracing for more market turmoil, while lawmakers in Washington wonder who is struggling the most. On Thursday, a House committee will hear from multiple players in the GameStop saga at a hearing titled “Is the game over? When short sellers, social media, and institutional investors clash, who wins and who loses?”
Gamestop: what it reveals about the us stockmarket | the
GameStop, which makes the majority of its money selling video games in stores around the country, saw its stock price rise as much as 1,700 percent this week, fueled by fans who believe it is unfairly undervalued by large investors who had invested billions that it would fall. The stock quickly soared in price as small investors promoted their purchases of the retailer’s stock in viral posts on social media, forcing big investors to spend billions of dollars to cover their losses.
GameStop is a retailer facing the same challenges as many others in the United States, where shopping habits and the pandemic have led to an increase in consumers purchasing products online rather than in shops. Investors on Wall Street have been aggressively betting against the company for months, claiming that its brick-and-mortar business model is doomed.
FILE – Reddit mascots are on display at the company’s San Francisco headquarters.
Not everybody was on board. Months ago, some members of a prominent stock market discussion forum on the Reddit website began urging others to invest in GameStop, claiming that the major investors had gotten it wrong and that the business was undervalued significantly.