The new battle between hedge funds and retail investors micro-communities: an insight on the GameStop case

Abstract

With this thesis I want to try to shed light on one of the most talked about and mysterious events that has upset the financial world in the first months of 2021: the GameStop case. In particular, after having made a brief excursus on the investment strategies that use the short selling operation and on the main players involved in the so called “GameStop stock saga”, I will try to explain how, through the study on the functioning of the microstructure of the stock market, small investors have managed to overwhelm the powerful hedge funds by exerting outsized market influence. And it is precisely this unusual influence, which is driven by the natural or synthetic magnification of social media, that will lead me to illustrate how this event has shown that the stock market can be easily manipulated, not only inside but also outside Wall Street, and to get an insight on the consequences it has had on the market. The power of this influence will also lead me to discuss the possible need to regulate retail investors who, riding the "fintech revolution", are proving to be able to drive sudden movements in stocks like hedge funds use to do.