Max Niu

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

Started Jan. 8, 2025

Abstract or project description

The GameStop (GME) short squeeze permanently affected the financial world. On July 20, 2020, GME stock closed at around $7.47 per share. More than 140 % of GME’s public float was sold short, making it one of the most heavily shorted stocks on the market. 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. A central figure in this phenomenon was Keith Patrick Gill, also known as “Roaring Kitty,” who posted his views on GME on the subreddit r/wallstreetbets. His commentary encouraged many retail investors to buy GME shares. This social media group chat triggered a short squeeze, resulting in substantial losses for major hedge funds that had accumulated extensive short positions. The outcome highlights an unexpected shift in the history of the financial world, where social media creates an opportunity for retail investors to influence outcomes previously determined by institutional investors. This research paper argues that while the GME short squeeze demonstrated the growing influence of retail investors and exposed flaws in financial markets, ultimately, it could not save GME from the inevitable collapse of its outdated business model in a digital economy.