On Friday, January 22nd, the stock price of an off-radar US video game retailer, GameStop, shot up 50%, causing a trading halt in its shares. The stock went up 18% the following Monday and 93% on Tuesday. Suddenly, everyone was talking about GameStop and how a Reddit community, named Wallstreetbets, declared “war” on Wall Street and the “mean” Hedge Funds.
So, what happened?
Days before the events unfolded, Citron Research said GameStop’s business was in “terminal decline” and mentioned it had a short position on the stock. Melvin Capital was also known to be heavily short on GameStop. …
Let’s see how the current environment looks like.
Here are some uncertainties that govern investors’ reactions over the past 50 days:
- Nobody knows how long will the pandemic last. Obviously, the longer the worse and there is no indication of slowing down.
- Nobody knows if people who get sick will have immunity over the next potential virus wave.
- Nobody knows how the transition period back to normal economic activity will be achieved and how long it will take.
- Nobody can estimate the real economic damage to the backbone of the economy → SMEs.
- Nobody can estimate the second derivative of…
