How Redditors Sent GameStop's Stock Price Through The Roof
ARI SHAPIRO, HOST:
The video game retailer GameStop has somehow become both the darling and bane of Wall Street this week. People gathering in Reddit chatrooms have sent the stock price through the roof. Trading platforms, including Robinhood, blocked people from buying any more of the stock this morning, saying they wanted to save people from losing too much money. But these investors and some politicians were infuriated by that move, saying if hedge funds can gamble with the economy, surely the little guy can prop up a beloved retailer. NPR's Chris Arnold joins us now.
CHRIS ARNOLD, BYLINE: Hey, Ari.
SHAPIRO: I want you to bring us up to speed with what happened today. But to start, for people who haven't been following the last crazy 24 hours in this story, how did a bunch of people on Reddit send this stock through the roof?
ARNOLD: Well, I think the bunch of people is the key thing, right? I mean, there are literally millions of people in this Reddit community called wallstreetbets. And many apparently decided that GameStop was underappreciated in the stock, had been unfairly beaten down. And they also saw this as a chance to strike back at hedge funds because hedge funds have been betting against GameStop by what's known as shorting the stock.
SHAPIRO: So the hedge funds had a plan to make money if the stock kept going lower, but these investors on Reddit thought, look, we can make the hedge funds lose money if we drive the stock price way, way, way up.
ARNOLD: Right. But to do that, you got to drive the stock price up. And to do that, you need a lot of money or you need a lot of people with a little bit of money each. And we talked to Matt Lyle. He studies how to value stocks at the Kellogg School at Northwestern University. He thinks what happened was some sophisticated people on Reddit recruited others. And also, people got fired up with all these posts about, you know, let's get back at the greedy people on Wall Street.
MATT LYLE: So they used this, let's call it, a herd mentality of buy, buy, buy. You will make money, never sell and we'll get those rich hedge fund jerks and bring the money back to us. That, I don't think, has ever been seen before. I mean, I know the power of social media, but I didn't know how much it could affect financial markets. This is historic.
SHAPIRO: OK. So that brings us up to speed with the kind of revenge of the little guy story. But what's happened today?
ARNOLD: Well, this has spread to other stocks that were struggling - AMC Theaters, BlackBerry. As this has spread, stock trading platforms like Robinhood restricted trading, like you were talking about. And there was a big backlash over that. I mean, investors saying, hey, come on, that's not fair. And politicians chiming in, too, saying, how come the little guy's hands are tied and the hedge funds can keep trading away? It's a double standard. The trading platforms, in their defense, say, look; I mean, we're trying to limit people's risk here. The stock is up 2,000%. And, look, it is a very risky stock, and the bottom could fall out any time.
SHAPIRO: Is there any concern about illegality here?
ARNOLD: We're going to have to wait and probably see on that, if there's investigations. But I talked to Sinan Aral. He's the director of the MIT Initiative on the Digital Economy. He also wrote a book on how social media disrupts not just elections, as we've seen, but also our economy.
SINAN ARAL: Somebody spouting their opinion about a stock is not market manipulation. But to the extent that there's some sort of coordinated effort to coordinate buying and selling online or the dissemination of false information with the intent to manipulate the value of a stock, those I think are clear violations.
ARNOLD: And an investigation here could help clarify, you know, where exactly is the line.
SHAPIRO: NPR's Chris Arnold, thanks for bringing us up to speed on the story.
ARNOLD: Absolutely. Thanks, Ari. Transcript provided by NPR, Copyright NPR.