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 triggers activity on WallStreetBets, which in turn precipitates price increases for heavily shorted stocks. In line with a causal interpretation, the effect of social media activity on stock returns (i) emerges when short sales are publicly disclosed but not when they are settled, (ii) strengthens when social media posts reflect coordination attempts against hedge funds, and (iii) attenuates during trading restrictions imposed by Robinhood. The resultant price appreciations hurt hedge funds, which respond by shorting less aggressively, leading to prolonged overpricing.

Keywords

Tags of Social Finance