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 these events were fueled by retail investors and social media platforms. Options markets also played a central role. Using hand-collected data we provide the first rigorous study of these short squeezes and show that they significantly impeded market quality for the stocks at issue and their competitors. Increased retail investor participation thus has risks as well benefits.

Keywords: Limits to arbitrage; Short selling; Short squeeze; Gamma squeeze; GameStop, Social media platforms, Retail investors

JEL Classification: G10; G12; G13; G14; G18