GameStop’s jaw-dropping volatility may just be the beginning

Trading in GameStop has reached feverish levels and shows few signs of breaking down.

Despite the price drop during Thursday’s session after several brokerages put limits on both buying and selling, the stock climbed 500% in one week.

It is possible that this is just the start of a new wave for Wall Street.

“People say, ‘Screw Wall Street,’ said Alex Imas, behavioral economist at the University of Chicago’s Booth School of Business.

Imas said we may be seeing a major shift in the power of social media when it comes to influencing marketable assets.

“What we’ve seen from this episode with GameStop is that networks like Reddit have the power to move a stock faster and farther and keep it at high levels for longer than expected, and coordination on those platforms allows that to happen. “

Investors have become accustomed to a system where the stock market provides a place where people receive independent signals and decide for themselves whether it is time to buy or sell. But, said Imas, “those social networks that can be a platform for large-scale coordination of an idea can cause an asset to deviate from its core value.”

Mainstream Wall Street analysts who cover the struggling video game retailer clearly don’t believe there is a fundamental argument for the stock to rise 1,400% in the first few weeks of 2021. As GameStop hit record highs Stratospheric levels, Bank of America analysts covering the stock once again told investors to take their profits now.

In an investor note on Wednesday, they said the stock was only worth $ 10 a share.

“The more business moves away from in-store transactions, the harder it will be to sell high-margin second-hand and collectible merchandise,” which accounted for 46% of GameStop’s sales in 2019, analysts said.

Of the six analysts covering the stock recorded by FactSet, the highest price target is $ 33 a share. As of noon Thursday, the stock was trading near $ 215 per share after falling from a session high of $ 483 per share.

There are other examples of where prices have skyrocketed, deviating from fundamental value, but not like this – where a group of people suddenly decided to coordinate to push up a stock. Anything that has a dot-com suffix grew until the late 1990s during a tech boom, stock market pundits struggled to explain.

In December 1996, then Fed Chairman Alan Greenspan warned of “irrational exuberance” in the stock market.

In March 2000, the Nasdaq peaked at 5,048 before losing 76% of its value over the next two years. The rise was due to many factors, including the birth of internet chat rooms, but nothing with the power we see today on platforms like Reddit.

Imas said Wall Street is going to have to grapple with the fact that this new form of grassroots collaborative investing is changing the landscape. “Investors have shown that they can organize themselves and have the ability to coordinate for the kicks, like it’s a game, and can clearly make real money at the same time,” he said. -he declares.

He added that there doesn’t seem to be anything illegal about the process “and I don’t see why we won’t see more and why people won’t come together as a group and win money “. Coordination “can apply to anything that is negotiable,” he said.

Correction: GameStop is a video game retailer. An earlier version of this story distorted the business model.