In the past few days, the “war of the century” between American retail investors and Wall Street shorts has shown a trend of refreshing the screen.
Guo Jie, chief professor of finance at Durham University in the United Kingdom and executive dean of the China Development Research Institute, said in an interview with reporters that the fierce confrontation between retail investors and short institutions in the United States has subverted the traditional order between the two in the past, which is related to factors such as the “herd effect” of retail investors, the resentment between the two and the pandemic situation.
The share price of the underperforming game retailer “Game Post” soared, causing short institutions to suffer huge losses.
In view of the recent sharp fluctuation of stock prices, online trading platforms such as Robinhood Markets recently announced restrictions on customers from buying some stocks such as “game post stations”, which was strongly opposed by retail investors.
“The whole event is more of a result of retail impulses and the ‘herd effect’.” Guo Jie said that individual investors tend to follow or even imitate the trading behavior of other investors.
Individual retail investors show their profits after encircling and suppressing the short side in the early stage to make profits, attracting other retail investors to join.
Guo Jie believes that this incident also reflects the outbreak of many years of confrontation between retail investors and institutions, especially short-selling institutions.
This confrontation can be traced back to the 2008 financial crisis, when air operations caused many retail investors to go bankrupt or even be indefinite. Some retail investors may only vent their anger by “forcing short” operations.
He said that the closing of retail bulls and institutional short positions may affect other stock trading.
Excess liquidity is more likely to be concentrated on the stocks of troubled companies, which is even more worrying.
Guo Jie said that the role of social media platforms in financial markets is worth pondering.
The combination of retail investors on social media platforms, encouraging each other to buy stocks, coupled with Tesla’s head Musk tweets to let more retail investors join the battle, have pushed the stock price soaring.
Guo Jie said that the current bubble is also related to the pandemic.
The pandemic prevention restrictions make people stay at home. With the distribution of government relief funds, more individual traders are expected to participate in the stock market, further boosting liquidity.
However, once the pandemic subsides, people begin to go out more, and the bubble is more likely to burst.
He believes that similar abnormal events in U.S. stocks may occur in the short term.