Yahoo Finance explains why some stocks, like Gamestop, are surging

timeJan 27, 2021 | 10:15 amYuval Bar-Or

Here is a useful article from Yahoo Finance, explaining why some stocks, like Gamestop, have surged recently.

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The key is that these companies have been benefitting from short-term herding behavior--not from fundamental economic improvements in their circumstances. Most likely, their stock prices will eventually revert to more accurate representations of their economic realities. As always, the investors who suffer wil be the last ones to join the "party," which means they will "buy high and be forced to sell low" after prices come back down to Earth. 

Yuval Bar-Or

2/8/21, 5:37 PM

Robert, We haven't really seen such dynamics before. This is the first major instance in which day-traders have rallied together to systematically squeeze professional money managers holding short positions. Some have likened this to a popular uprising by "blue-collar" day-traders against "white collar" professional investors. The actions are now attracting regulatory scrutiny. It must be noted that these rallies to make prices pop don't seem to be connected to the realistic underlying prospects for the companies in question. Are the day-traders guilty of market manipulation? Have any laws been broken? I expect those questions will be addressed in coming weeks.

Robert Nogay

1/27/21, 3:48 PM

Hi Professor, I agree that, based on fundamentals, these "manic" stocks will eventually revert to more accurate valuations. What I find interesting is the number of short investors who are getting squeezed because they are trying to bet on said reversion. Have we seen market dynamics like this before?