Social informedness and investor sentiment in the GameStop short squeeze

Kwansoo Kim (), Sang-Yong Tom Lee and Robert J. Kauffman ()
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Kwansoo Kim: Copenhagen School of Business
Robert J. Kauffman: Copenhagen School of Business

Electronic Markets, 2023, vol. 33, issue 1, No 22, 24 pages

Abstract: Abstract We examine investor behavior on social media platforms related to the GameStop (GME) short squeeze in early 2021. Individual investors stimulated the stock market via Reddit social posts in the presence of institutional investors who bet against GME’s success as short sellers. We analyzed r/WallStreetBets subreddit posts related to GME’s trading patterns. We performed text-based sentiment analysis and compared the social informedness of posting users for GME trading on two social media platforms. The short squeeze occurred due to coordinated trading by individual investors, who discussed trading strategies on the platforms and drove collective social informedness-based trading behavior. Our findings suggest that the valence and number of submissions influenced GME’s intraday transaction volumes and precursors for irrational trading behavior patterns to have emerged. We provide a theoretical interpretation of what occurred and call for tighter monitoring of social news platforms. We also encourage effort to create an in-depth understanding of the observed patterns and the linkages between them and the larger equity markets.

Keywords: Collective behavior; Informedness theory; Investor sentiment; Irrational trading; Short squeeze; Social informedness (search for similar items in EconPapers)
JEL-codes: D8 D82 G14 G41 L86 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s12525-023-00632-9

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