GameStop investors are playing by rules you'll find in a casino more than a stock portfolio
By Mark Hulbert
Lottery-type stocks like
The odds remain stacked against
Speculators piled into the stock in a big way, as you can see from the accompanying chart. In contrast to an average daily trading volume over the prior six months of 4.6 million shares, volume jumped to more than 65 million on the day after the earnings report.
Many of the speculators who propelled
This tendency may have already begun with
The NBER study, entitled "Attention, Social Interaction, and Investor Attraction to Lottery Stocks," was conducted by Turan Bali of Georgetown University; David Hirshleifer of the University of Southern California; Lin Peng of Baruch College; and Yi Tang of Fordham University. The researchers found that a stock acquires lottery-like characteristics because of a feedback loop involving its volatility, investor attention, and social interactions via channels such as social media.
What happens is a stock with relatively dull day-to-day trading will suddenly come to life. Its huge one-day gain will attract the attention of speculative traders looking for more, pushing the stock even higher --at least temporarily. Social media then catches on, causing the stock to become even more volatile and attracting even more attention. Notice that this feedback loop has nothing to do with a stock's underlying net worth.
Further evidence of this feedback loop is provided by the jumps in other meme stocks in the immediate wake of
Investors -- as opposed to gamblers -- should be on their guard.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at firstname.lastname@example.org
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March 25, 2023 13:26 ET (17:26 GMT)
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