Squeezing Shorts Through Social News Platforms

59 Pages Posted: 12 Apr 2021 Last revised: 21 Apr 2021

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Eric Nowak

Swiss Finance Institute; University of Lugano

Matteo Pirovano

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Angel Tengulov

Vanderbilt University - Finance

Date Written: March 10, 2021

Abstract

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

Allen, Franklin and Nowak, Eric and Pirovano, Matteo and Tengulov, Angel, Squeezing Shorts Through Social News Platforms (March 10, 2021). Swiss Finance Institute Research Paper No. 21-31, Available at SSRN: https://ssrn.com/abstract=3823151 or http://dx.doi.org/10.2139/ssrn.3823151

Franklin Allen

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Eric Nowak

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Lugano ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland
+41-91-9124-637 (secr. -712) (Phone)
+41-91-9124-647 (Fax)

Matteo Pirovano

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Angel Tengulov (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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