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Reddit flash mob causes a frenzy in the stock market: a big change or illegal activity?

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Jiya Saini
Jiya Saini is a Journalist and Writer at Revyuh.com. She has been working with us since January 2018. After studying at Jamia Millia University, she is fascinated by smart lifestyle and smart living. She covers technology, games, sports and smart living, as well as good experience in press relations. She is also a freelance trainer for macOS and iOS, and In the past, she has worked with various online news magazines in India and Singapore. Email: jiya (at) revyuh (dot) com

A frenzy occurred in the stock market after users of the Reddit forum on the internet triggered the share prices of GameStop and AMC, among others, causing huge losses for the big hedge funds.

The shares of the video game store chain GameStop are experiencing an unprecedented rise. Their values ​​rose hundreds of times and caused multimillion-dollar losses to hedge funds that had opened short positions, selling an asset with the idea that the price will fall and then buy it at a lower level.

The reason for the recent rally is a flash mob on the internet: users of a forum dedicated to investment on the social network Reddit made stock prices soar.

The situation is so serious that it even caught the attention of the US authorities. Jen Psaki, the White House press secretary, said on January 27 that Treasury Secretary Janet Yellen and other members of the Biden Administration are overseeing GameStop’s major movements and some other actions.

According to Economics Doctor Daniel Lacalle, this is a “very dangerous activity, of raising the price of shares artificially by joining in a group without a fundamental justification”.

“I am very concerned that minority investors will be convinced that you can do anything with the price of a share without consequences,” says the professor of Global Economics and Finance and also a mutual fund manager.

The expert stressed that collusion is a factor considered illegal within the market.

“Collusion is very negative for the market, whether a government does it or an investment fund does it with another. It would be the end of the market,” he warned. 

According to Lacalle, collusion cannot be considered an activity “that is good because it is done by minority investors.”

“Minority investors have the right to take positions but deliberate and instigated joint action, that is called collusion, is illegal and would be devastating for the market,” he said.

Therefore, the analyst assured that “there will be an investigation by the regulators” in this regard.

Lacalle said that this incident will not generate a change at the global investment level “because no institutional investor can afford that level of volatility.”

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