The GameStop Short Squeeze: Retail Investors, Market Mechanics, and the Decline of a Legacy Business Model

Abstract

The GameStop (GME) short squeeze has permanently affected the financial world with permanent ramifications. In mid-2020, GME stock closed at around $7.47 per share, and by that time, more than 60 % of GME’s outstanding shares were sold short, making it one of the most heavily shorted stocks on the market (“In-Depth Timeline”). In late 2020, GME experienced a decline in profit from its traditional retail model for video games, stemming from the shift to digital video game markets. Many institutional investors anticipated a decrease in the stock. This caused GME to be one of the most short-sold stocks in history, with an estimated short position of $483.00 as of January 28, 2021. This research paper argues that while the GME short squeeze demonstrated the growing influence of retail investors, exposed flaws in financial markets, and accelerated discussions about financial democracy, ultimately, it could not save GME from the inevitable collapse of its outdated business model in a digital economy. Many people view this GME short squeeze as a wake-up call, as it has exposed the traditional financial market's flaws and the influence of social media. As for regulators, they have been pressed to consider whether the current market can sustain the price jumps of similar phenomena. Some argue that this event reveals the transparency of the financial world, while others believe that hype on the internet has done invisible damage to the traditional financial market.