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Social informedness and investor sentiment in the GameStop short squeeze

Author

Listed:
  • Kwansoo Kim

    (Copenhagen School of Business)

  • Sang-Yong Tom Lee

    (Hanyang University)

  • Robert J. Kauffman

    (Copenhagen School of Business)

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.

Suggested Citation

  • Kwansoo Kim & Sang-Yong Tom Lee & Robert J. Kauffman, 2023. "Social informedness and investor sentiment in the GameStop short squeeze," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-24, December.
    • Handle: RePEc:spr:elmark:v:33:y:2023:i:1:d:10.1007_s12525-023-00632-9
    DOI: 10.1007/s12525-023-00632-9
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    More about this item

    Keywords

    Collective behavior; Informedness theory; Investor sentiment; Irrational trading; Short squeeze; Social informedness;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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