Group Psychology of the r/WallStreetBets Short Squeeze.
A “short squeeze” is an adversarial trading technique where a firm buys a stock that another firm has shorted. When the stock price subsequently rises, the short seller must buy back the stocks it shorted at a higher price (further boosting the price). The results in a positive feedback loop, ultimately meaning huge losses for the short seller (and gains for the attacker) [1][2] This is an advanced market manipulation technique used by large hedge funds to screw each other over, mostly because the aforementioned feedback loop requires a lot of capital to trigger. However, in January 2021, a small group of retail investors rocked the market by successfully short squeezing GameStop (GME), resulting in major losses for high profile hedge funds. [6] This group of investors congregated on r/wallstreetbets, a brash Reddit forum dedicated to risky investments [11] . In early January, forum leaders noticed many hedge funds had huge short positions on GME. Realizing the possibility of a short s...