Did the Game Stop for Hedge Funds?

Abstract

Can retail investors on social media platforms effectively target hedge fund short positions? We show that the disclosure of hedge fund short positions drives social media activity on WallStreetBets. Social media activity in turn precipitates price increases for heavily shorted stocks. The resultant short squeezes hurt hedge funds, which respond by shorting less aggressively, leading to prolonged overpricing in the stock market. In line with a causal interpretation, the impact of social media on stock returns manifests around the publication dates for short sales, but not around the settlement dates, and attenuates during trading restrictions imposed by Robinhood.

Keywords: Gamestop, Robinhood, Meme stocks, Hedge funds, WallStreetBets, Social media, Short sales, Retail investors, Market efficiency

JEL Classification: G12, G23