While all these questions will continue, the new GME share price rally suggests this is not a one-off situation. It’s not entirely clear why the stocks were targeted. It can be linked to the fact that the congressional hearing has passed. It may have to do with GameStop Chief Financial Officer Jim Bell’s resignation, signaling a change in direction within the company. Or it may be due to the fact that short positions on the company’s stock have risen again, which can cause amateur traders to buy bullish options in stocks that will be highly profitable if the price continues to rise.
But at the same time, I would argue that none of these reasons properly explain what is happening here. After years of studying financial markets and especially the highly highly cons investing new cryptocurrency market, I was able to identify the three main reasons behind this phenomenon.
First, it’s about the expansion of fintech and the ongoing decentralizity of financial markets. New technologies such as easy trading applications provide access to financial markets for a large number of amateurs. They allow financial liberalization and autonomy from big banks and other institutions that control the market, like cryptocurrencies, and this has great appeal. Financial scholars have named this effect “cryptocurrency magnification”.
Secondly, it is the expansion of the meme culture of millennials and Generation Z “gays”, in which emotions are expressed by images, sounds, videos, emojis and abstract humor. Social media posts can contain strings of meaningless, inaccessable insults, and never-ending slang.
All of this makes it more difficult to assess the feelings behind them. For example, behavioural finance researchers often use algorithms to extract investor sentiment from Twitter posts, Google search trends, and media headlines. But how will you use academic software to analyze content on r/WallStreetBets? This is a huge challenge.
The third and perhaps least obvious motivation is the pandemic. A generation of young traders has blamed older people for the global financial crisis. The pandemic has increased the sense of social inequality and hatred for the money of booming children, as the younger generation who grew up or studied during the last recession now face another subject of young professionals.
The government’s limitations and the social isolation they inflicted are also said to have increased rebellious sentiment. At the same time, this situation creates the ideal environment for these types of market manipulation.
So if the second GameStop rally surprises you, you don’t really need to find a reasonable explanation for it. GameStop’s stock rally was driven by a combination of cultural and environmental factors. The fact that all this seems to be more important to amateur traders than making money is fascinating and needs to be studied. Besides GameStop, AMC and also the Dogecoin explosion, we will continue to observe more cases like this in the future.
This article by Larisa Yarovaya, Deputy Director of the Centre for Digital Finance, Lecturer in the Faculty of Finance, University of Southampton, is re-posted from The Conversation under the Creative Commons licence.