Media Trading Groups and Short Selling Manipulation
52 Pages Posted: 15 Mar 2021 Last revised: 26 Jun 2023
Date Written: March 1, 2021
This paper models how chatroom traders, forming a coalition via social media platforms, influence the stock price in the presence of large and strategic short sellers. The economic consequences of this dynamic game are studied in a micro-founded quasi-competitive equilibrium framework, which is new to the literature. Various equilibrium phenomena arise, including price bubbles, 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 either increase or decrease market efficiency. Additionally, it uniformly improves social welfare under the belief-neutral welfare criterion.
Keywords: Meme Stocks; Market Manipulation; Media Trading Groups; Allocational Efficiency; Belief-neutral Efficiency
JEL Classification: G12, G13, G14, G18.
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