Recently, there are some stocks that rocketing such as Gamestop (GME) and AMC Entertainment \ AMC) are all bought up by retail investors, according to Bart Zhou Yueshen, assistant professor of finance at INSEAD.
“The large volume of transactions last week, I find it difficult to believe that only retail investors are trying to push these stocks,” Zhou said, quoting from CNBC International.
Last week, the US stock market was shocked by the astonishing rally in GME stocks where the stock has flown up to 1,500% since the start of the year.
Retail investors flock to stocks that are heavily shorted to force these short sellers to buy stocks at high prices.
Short selling itself is a strategy in which an investor borrows shares to sell on the market. They expect the shares will fall in the future to be repurchased and returned to the borrower.
“It’s hard to believe that the market is solely driven by retail investors and there are no institutional investors trying to get in anyway, institutional investors are not stupid, they are looking for opportunities like this and of course they can jump in,” he added.
Trading App vs Professional Investor
The stock rallies that have been sold short are attributed to many retail investors, especially investors in the subforum Reddit, Wall StreetBets, where amateur retail investors use trading applications with 0% commissions to fight against professional players on Wall Street.
After this retail investor excitedly enters GME, AMC, and other stocks, the question arises whether this is market manipulation.
According to Zhou, regulators could certainly try to check, although it is unclear whether they will find evidence of market manipulation.
“To prove manipulation, you have to first find a ‘bad goal’, which in this case is not very clear.”
According to him, forums such as Reddit can be classified as a place for investors to have their opinion about which stocks they want to buy or sell.
This leaves the task of proving market manipulation to fall to regulators, which Zhou says will be hard to find.
The Securities and Exchange Commission (SEC) said it will review the trading volatility that has emerged lately.
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