Squeezing Shorts Through Social Media Platforms

Abstract

At the end of January 2021, a group of stocks listed on US stock exchanges experienced sudden price increases, which – coupled with high short interest – led to short-squeeze episodes. We find that discussions on social media fueled the association between retail trading and stock returns. Options markets also played a central role. Using unique data from social media platforms we provide a comprehensive account of these short squeezes and show that they significantly impeded market quality for the stocks at issue and their competitors. Thus, retail trader coordination can lead to market-distorting events and impair market efficiency.

Keywords: Limits to arbitrage; Short squeeze; GameStop; Market misconduct; Social media platforms; Retail investors