✍Aenco Academy #30: WallStreetBets — How Social Media and Internet Influencers Influenced the Market

In late-January, there was a dramatic short-term upsurge in GameStop’s stock. It was driven by a large group of small-time individual traders on the Reddit forum (subreddit) r/WallStreetBets. WallStreetBets (WSB) is where members discuss options trading and the stock market. It has now become a well-known platform for its aggressive trading strategies which makes trading stocks like placing bets.

The story has stirred up much attention since the short squeeze on GameStop initiated by the participants of WSB, which remarkably pushed up the stock prices of GameStop (GME) on January 22, 2021. On January 27, they triggered a short squeeze on AMC Entertainment Holdings, Inc. (AMC), which is in a similar position to GameStop. Nokia Corporation (NOK) and Palantir Technologies Inc. (PLTR) were also on their list of targeted stocks. The driver behind this series of activities is that WSB participants were resentful about how short sellers, such as Citron Research, had been bearish on GME’s prospects and shorted the stock heavily. Therefore, an army of retail investors was gathered on WSB, spurred GME’s stock, and sought to catch out the short sellers and make profits.

Retail traders on WSB hold an antagonistic view to many hedge funds and short-sellers. They bet that stocks will go up instead of going down. Unlike the traditional traders, they treat stocks as a quick way to obtain instant additional income than a long-term strategy to build wealth. It has brought about the high-risk day-trading trend. Amid the market frenzy, WSB members frequently use slang such as “stonks” for stocks and “YOLO” (you only live once), and hashtags like #GMEtothemoon in the discussion forum. Such down-to-earth and youthful nature may attract more young retail traders or investment beginners to betting on the “meme stocks,” causing trading volumes to skyrocket.

Additionally, internet influencers contribute to influencing the stock market. Elon Musk, Tesla’s CEO, tweeted “Gamestonk!!” with a link to the WSB subreddit on January 26. Chamath Palihapitiya, the founder of Social Capital, also made a tweet on the same day that he bought calls on GME. The frenzy in retail buying spurred by social media has become evident when GME’s stocks reach a $24 billion market cap on the next day, January 27. Social media can have a great impact on retail trading.

All in all, the internet and media are playing a more important role in transmitting the information. People will be influenced by online information and make decisions accordingly, which in turn affects the physical world. This “David versus Goliath” story hinted that social media can impact financial markets. Hence, it is crucial for hedge funds and short sellers to take note of the retail traders’ strategies and potential risks brought by a discussion on online platforms.

𝓕𝓲𝓷𝓭 𝓐𝓮𝓷𝓬𝓸:

✔𝘛𝘦𝘭𝘦𝘨𝘳𝘢𝘮: 𝘵.𝘮𝘦/𝘈𝘦𝘯𝘤𝘰

✔𝘔𝘦𝘥𝘪𝘶𝘮: 𝘮𝘦𝘥𝘪𝘶𝘮.𝘤𝘰𝘮/@𝘢𝘦𝘯𝘤𝘰𝘪𝘯/

✔ 𝘐𝘯𝘴𝘵𝘢𝘨𝘳𝘢𝘮: 𝘪𝘯𝘴𝘵𝘢𝘨𝘳𝘢𝘮.𝘤𝘰𝘮/𝘢𝘦𝘯𝘤𝘰𝘪𝘯/

✔𝘓𝘪𝘯𝘬𝘦𝘥𝘐𝘯: 𝘭𝘪𝘯𝘬𝘦𝘥𝘪𝘯.𝘤𝘰𝘮/𝘤𝘰𝘮𝘱𝘢𝘯𝘺/𝘈𝘦𝘯𝘤𝘰

✔𝘛𝘸𝘪𝘵𝘵𝘦𝘳: 𝘵𝘸𝘪𝘵𝘵𝘦𝘳.𝘤𝘰𝘮/𝘈𝘦𝘯𝘤𝘰𝘪𝘯

✔𝘍𝘢𝘤𝘦𝘣𝘰𝘰𝘬: 𝘧𝘢𝘤𝘦𝘣𝘰𝘰𝘬.𝘤𝘰𝘮/𝘈𝘦𝘯𝘤𝘰𝘪𝘯

✔𝘋𝘪𝘴𝘤𝘰𝘳𝘥: 𝘥𝘪𝘴𝘤𝘰𝘳𝘥.𝘨𝘨/𝘕𝘟𝘱𝘍𝘤𝘒𝘘

✔𝘠𝘰𝘶𝘛𝘶𝘣𝘦: 𝘠𝘰𝘶𝘛𝘶𝘣𝘦.𝘈𝘦𝘯𝘤𝘰𝘪𝘯.𝘤𝘰𝘮

✔𝘝𝘪𝘣𝘦𝘳: 𝘈𝘦𝘯𝘤𝘰 𝘝𝘪𝘦𝘵𝘯𝘢𝘮

✔𝘡𝘢𝘭𝘰: 𝘻𝘢𝘭𝘰.𝘮𝘦/𝘨/𝘷𝘷𝘨𝘭𝘮𝘫886

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