by Warren C. Gibson
The American Institute for Economic Research
GameStop, along with Hertz, AMC and others have made headlines recently as their share prices soared in defiance of their near-death fundamentals. Crowds of traders often called a “flash mob,” mostly brash young novices, got together via social media to bid up the shares, motivated partly by the age-old prospect of selling to a greater fool, but also to “stick it to the shorts,” meaning force holders of short positions to buy the shares and cover their losses, thereby driving shares still higher, and presumably reaping a dose of schadenfreude for the mobsters along the way.
The GameStop story was the subject of Peter C. Earle’s recent piece “Who’s to Blame for the Rash of Short Squeezes?” here at AIER.
Short sellers borrow shares and sell them, hoping to buy them later at a lower price and return the shares. Short-selling is neither illegal nor immoral, and when short sellers are right they help adjust the share prices of failing companies sooner than would otherwise happen.