Heterodox Economics Newsletter

Issue 275 February 01, 2021 web pdf Heterodox Economics Directory

The stock market rally of the last years has taken an unexpected turn these days, when a coordinated effort of hobby-investors and semi-professionals engaged in a (slightly dubious) reddit-forum managed to corner some professional Wall Street short-sellers by buying shares of GameStop – a retailer for computer games & consoles. To me, this is a somewhat ambivalent phenomenon as many latecomers to the show will probably lose some money. At the same time it is highly interesting to see some rudimentary strategic herd behavior emerge from a public forum largely driven by a variety of emotions. These emotions range from "traditional" animal spirits over 'gambling fevers' a la Dostojewski to the partly desperate hope for challenging a system that is perceived as unfair and unethical.

To me, there is a double irony here: for one, emotions, which are with good reason not considered to be a suitable guide for your investment decisions, serve as a basis for executing a quite rational strategy in a large group, that would not be available to single players due to lack of capital. Here emotions are a core foundation: the lack of individual endowments is compensated by a (surely fragile) informal agreement on cooperation fuelled by emotional commitments. For another, the surge in the GameStop stock prices has led various players to declare this as a case of potential market manipulation that merits investigation, which would impose a double standard as retail investors are actually only copying an established Wall Street strategy (namely this one).

While the second observation is politically revealing (and, admittedly, also quite funny), the first observation is theoretically interesting as it seems somehow truly novel: while to me strategic moves by market makers and herd behavior are key features of modern financial markets (and, hence, unsurprising), I have a hard time finding a historical example for this specific kind of emergent herd behavior, that collectively mimics a strategy that is typically associated with large financial institutions. If reddit facilitates such novelties its (+1) for reddit, no matter what you think about public forums like these in general... ;-)

All the best,

Jakob

PS: We have three new positions for doctoral students in the doctoral school 'Political Economy of Inequaity' at University of Duisburg-Essen (Germany). All details can be found here and below.

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