Paper Type

Short

Paper Number

1614

Description

The GameStop (Ticker: GME) short squeeze in 2021 was a representative event of market irrationality, illuminating the profound impact of social media on financial markets. Leveraging data from the StockTwits platform, we employ a difference-in-differences (DID) approach and propensity score matching (PSM) to investigate the causal relationship between the GME short squeeze and market dynamics. Our analysis demonstrates a significant increase in stock price standard deviation for GME-relevant stocks post-squeeze, accompanied by decreased social media users’ forecast accuracy. These findings highlight the increased market volatility and decreased predictability following GME short squeeze, suggesting diminished market efficiency. Our research bridges the gap between social media, market irrationality, and short squeeze dynamics, contributing to the cultivation of healthier, more stable financial markets.

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Jul 2nd, 12:00 AM

GME Frenzy on Social Media: The Impact of Short Squeezes on Market Volatility and Predictability

The GameStop (Ticker: GME) short squeeze in 2021 was a representative event of market irrationality, illuminating the profound impact of social media on financial markets. Leveraging data from the StockTwits platform, we employ a difference-in-differences (DID) approach and propensity score matching (PSM) to investigate the causal relationship between the GME short squeeze and market dynamics. Our analysis demonstrates a significant increase in stock price standard deviation for GME-relevant stocks post-squeeze, accompanied by decreased social media users’ forecast accuracy. These findings highlight the increased market volatility and decreased predictability following GME short squeeze, suggesting diminished market efficiency. Our research bridges the gap between social media, market irrationality, and short squeeze dynamics, contributing to the cultivation of healthier, more stable financial markets.

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