Mindel Scott

Is the Reddit Short Squeeze Legal

In early 2021, Wall Street began to see high-profile short cuts. These are situations where investors coordinate their purchases and drive up the price of certain stocks to force short sellers to give up their positions at a loss1. In GameStop Corp. (GME) short squeeze, Joe`s acted as a retail investor on average each day, pushing against shorts placed against GME by the “Wall Street 1%” described. This event was fueled and supported by the popular Reddit forum WallStreetBets. This forum allows career investors and the average person to come together to discuss hot topics in the trading market. Here is the news of the big shorts placed against GME on the main stage. From there, thousands of people gathered to buy GME shares in order to drive up the price and lead short positions to large losses. This rally resulted in a 1,600% increase in GME`s share price due to the nostalgic love these investors had for the company and the fight against Wall Street and was called one of the largest bull runs in stock market history. GME`s bullish run was quickly followed by a similar short-term squeeze at AMC Theatres (AMC), which benefited from the same determining factors as GameStop, with the share price rising 52%.

Such a highly coordinated financial “operation” has received a great deal of attention not only from the media and financial actors, but also from the academic community. Following a popular stream of literature aimed at predicting stock market trends using sentiment on social media13,14 (with a current focus on WSB and cryptocurrency price movements15,16,17), most of the scientists` attention has focused on understanding whether activity, WSB conversational sentiment and user interactions can be used to predict retail trading activity and GME returns. Use of linear regression models or machine learning approaches18,19,20,21,22,23,24. Few empirical studies address the more fundamental question of how coordination or consensus might arise spontaneously in this context. Boylston et al.10 show that the jargon and humour of WSB members is a means of expressing and reinforcing the community`s sense of identity. Semenova and Winkler24 find empirical evidence of psychological contagion among WSB users, with an early group of investors attracting an ever-growing group of enthusiastic followers. Lucchini et al.25 measure the increasing engagement of users in GME operations and the social identity of BMS participants and describe the key role of a minority of users engaged in triggering collective action. Anand and Patak19 go in the same direction, showing that they were a tiny minority of the 462 most influential subredditors whose contributions most influenced GME`s share price. [17] See Cory Mitchell, What is a Short Squeeze?, Investopedia (January 28, 2021), www.investopedia.com/terms/s/shortsqueeze.asp#:~:text=What%20Is%20a%20Short%20Squeeze,pressure%20on%20the%20stock`s%20price. Many traders involved in the short-squeezes of GameStop (GME) and AMC Entertainment (AMC) are betting that these rule changes will significantly affect the ability of market makers and hedge funds to short off stocks, which they say puts pressure on stock prices. Reddit conversation tree. (A) Reddit users can write messages to initiate a conversation and can comment (reply) to posts or other comments.

For each post and comment, a sentiment score between (-1) and (+1) (negative or positive) can be calculated. (B) The conversation on the social network can be represented by a forest of trees, where each post is the root of a tree and the following comments represent its branches. (C) Trees can be used to retrieve a user-user network, where a link from user i to user j represents how often I commented on user posts/comments j. (D) Cumulative number of trees larger than a certain size (in terms of number of comments) for different months of the relevant period of data. (E) Cumulative number of users who contributed to more than a certain number of messages/comments in a given month. (F, G) Example of representation of the tree forest conversations for January 21, 2021 and March 19, 2020. The icons in (AâC) were designed by Freepik. The schematic representation of a Reddit post in (A) has been recreated by the authors. The network representations on (F, G) were created by the authors with Gephi software. [19] Nir Kaissar, GameStop Furor Inflicts Lasting Pain on Hedge Funds, Bloomberg op. cit. (1.

February 2021), www.bloomberg.com/opinion/articles/2021-02-01/gamestop-gme-short-squeeze-inflicts-lasting-pain-on-hedge-funds. [38] See Maggie Fitzgerald, Here`s what to expect from the Thursday`s GameStop hearing with Robinhood, Citadel and Reddit CEOs, CNBC.com (February 17, 2021), www.cnbc.com/2021/02/17/gamestop-hearing-what-to-expect-from-robinhood-reddit-and-citadel.html. When situations arise that result in substantial gains or losses that are not based on facts, additional regulations may affect accounting and finance for these types of transactions. While there are no new laws or regulations to address this issue, these events could pose potential challenges for the accounting, investment and consulting industries. GME and GAC`s short cuts have highlighted how markets can be affected by unpredictable or previously unknown events.