Squeezing Shorts Through Social News Platforms
59 Pages Posted: 12 Apr 2021 Last revised: 21 Apr 2021
Date Written: March 10, 2021
At the end of January 2021, a group of stocks listed on US stock exchanges experienced sudden surges in their stock prices, which - coupled with high short interest – led to brief short squeeze episodes. We argue that these short squeezes were the result of coordinated trading by investors, who discussed their trading strategies on social news platforms. In addition, option markets played a central role in these events. Using hand-collected data we provide the first rigorous academic study of these short-squeezes and show that they significantly impeded market quality not only of the stocks at issue but also of their competitors. This evidence calls for tighter monitoring of social news platforms and a better understanding of the interlinkages between these platforms, derivatives markets and equity markets.
Keywords: Limits to arbitrage; Short selling; Short squeeze; Gamma squeeze; Social news platforms
JEL Classification: G10; G12; G13; G14; G18
Suggested Citation: Suggested Citation