Herding Mentality in the GameStop Short Squeeze
A Case Study
DOI:
https://doi.org/10.58445/rars.1554Keywords:
Herding Mentality, Short Squeeze, Price Bubbles, GameStopAbstract
Engaging a broad base of retail investors and threatening several institutional investors, the 2021 GameStop short squeeze was an economic event, reminiscent of the herding mentality that has been observed in various other bubble events. To examine the role that herding mentality played in the short squeeze, this paper addresses the following research question: what impact did the herding mentality among retail investors have on the price of the GameStop stock during the 2021 short squeeze? To do so, this paper utilizes a case study research methodology that cross-examines the GameStop short squeeze with Hott’s theoretical framework on herding mentality. While the Hott framework accurately describes how an initial positive signal sparks a bubble and how a positive feedback loop causes asset prices to increase through a herding mentality, the framework maintains an assumption that the herding mentality is information-based, without recognizing that it can be emotionally driven, especially through social groups. Moreover, the framework also fails to recognize that a bubble does not necessarily burst due to investors receiving new information, but can also burst due to the intervention of economic institutions. These findings show that our understanding of herding mentality needs to be updated to incorporate the potential social moods that can drive coordinated efforts which can become dangerous as information, sentiments, and collectivism can rapidly spread through digital platforms to reach a broad audience of investors. This has the potential to threaten market stability and repeatedly cause disturbing phenomena such as asset bubbles and crashes if left unaddressed.
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u/RobBobheimer. (2020). Good day, fellow retards. We are entering a new stage of the short squeeze. It’s apparent by now that it’s not playing out like the VW short squeeze because the setup was so long and out in the open. Hedge funds had time to collude and plan how they’re going to deal with the fallout. As we saw last week, they came up with some clever fuckery. For a recap, here are some tactics we saw from them: - Short attacks driving the price down, triggering stop loss sells and trading halts. - Spreading the word through the media that they had already closed their short positions - Putting pressure on brokers to limit buying of GME and killing the buy side of the trade, making it easier to drive the price down. - Low volume ladder attacks to drive the price down and forcing out paper hands. We held strong, guys and gals. We closed Friday just a few dollars shy of the highest closing price on Wednesday. But now the real trench warfare begins. Melvin told CNBC that they closed out their short positions. I have a theory that this may not be technically false, with a caveat. I think it’s very possible that Hedgies have closed out their ORIGINAL short positions, but they’ve been replaced with new short positions. These guys are not going to lose billions of dollars lying down, so they must have their own end game for how to get out of the trade alive, and perhaps even make a profit. If GME was a tasty short target at $15, imagine how irresistible it is at $320. These fuckers lost their shirts on the original trade, but they see an opportunity to make it back on this new trade by repositioning their old shorts from the $15 to new shorts in the $200-300s. How can we know this is likely true?: - The short interest has fluctuated, so we know there has been some covering - The short interest has remained high, somewhere around 100% or above - There have been short attacks in $100s, $200s, and $300s, so we know there are new short positions at those levels. - Hedge funds are cocky assholes and they’ll do anything to turn a losing trade into a winning one, and if it fucks over the little guy to scare them back to submission, all the better. So basically, nothing has changed. This is still a short squeeze play, just with much higher stakes. We have the advantage however, because it doesn’t cost us anything to hold onto our shares, whereas it’s costing Hedgies billions of dollars to hold out. We will know we are winning next week if we continue to see more de-grossing in the broader market. If we can hold out, we can take this to the next leg up, ACT III, and eventually the end game. TLDR: 💎 🙌 🚀🚀🚀🚀 Edit: Positions: I own Shares Disclaimer: I am not a professional. This is not a recommendation. Reddit. Retrieved July 30, 2024, from https://www.reddit.com/r/wallstreetbets/comments/l8nvir/gme_short_squeeze_act_ii/
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