Media Trading Groups and Short Selling Manipulation--Are Media Groups Efficiency Enhancing or Reducing?

Abstract

This paper models how chatroom traders, unionized via social media platforms, influence the stock price through momentum trading in the presence of large and strategic short sellers. The economic consequences of this dynamic game are studied in a quasi-competitive equilibrium framework, which is new to the literature. Depending on the market structure, various equilibrium phenomena arise, including short squeezes, forced liquidations, and precautionary savings by the large trader. Media groups discipline the large trader's incentive to short sell, but it can be either efficiency enhancing or reducing.

Keywords: GameStop, Market Manipulation, Short Selling, Short Squeezes, Media Groups, Precautionary Savings, Margin Calls, Forced Liquidations.

JEL Classification: G12, G13, G14, G18.