The GameStop incident in early 2021 was a classic example of what can happen when hedge fund trading strategies go wrong. A share trading around $17 had moved higher to briefly touch $500 as a variety of buyers, including many retail buyers on platforms such as Robinhood, bought the stock. Investors were aware that there was a large short base in the shares, in particular from a hedge fund called Melvin Capital, and this encouraged them to buy. Ultimately the share price moved lower again, settling around $50 by the start of February but much damage had been done, and the regulators started to look closely at the whole affair.
Key learning objectives:
What happened in GameStop shares in early 2021?
Why did the share price behave as it did?
What was the impact of the events in GameStop shares?