Squeezing Shorts Through Social Media Platforms
Franklin Allen, Marlene Haas, Eric Nowak, Matteo Pirovano, Angel Tengulov
Management Science · Mon
Abstract
In January 2021, a group of stocks listed on U.S. stock exchanges experienced sudden price increases, which, coupled with high short interest, led to short squeezes. We find that discussions on social media fueled the association between retail trading and subsequent stock returns. Options market activity and securities lending constraints also played a central role. Using unique data from social media platforms, we provide a comprehensive account of these short squeezes. We find that they significantly impeded market quality for the stocks at issue and their competitors. Thus, the interplay between social media and retail traders may have adverse consequences for market quality and efficiency. This paper was accepted by Will Cong, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.02887 .
Keywords
short squeeze, GameStop, limits to arbitrage, market misconduct, social media platforms, retail investors
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