GameStop analysis: Collective action, collective investments
GameStop, the Texas-based video game and consumer electronics retailers, has become a celebrated name in the investment press over the past few weeks – although not for reasons it will necessarily celebrate.
Activist retail investors targeted short selling activity by hedge funds on GameStop shares, forcing up the share price and reportedly triggering large losses for the hedge funds involved.
We await full explanation of why Melvin Capital, and other hedge funds, sustained such large losses through shorting Gamestop shares. What hedges did they have in place to cover their short positions? And why did their risk management crumble at the hands of a seemingly low-fi stock-buying strategy coordinated over Reddit?
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And remarkably, as things stand, it actually worked. Those with even a passing interest in the financial world will no doubt have clocked the drama around GameStop, investors tapping into the online forum Reddit, hedge funds and the sharemarket. So why is an obscure American videogame retailer creating such a buzz? Why are online communities of investors mobilising? And why are professional fund managers now looking over their shoulders?
What is GameStop and why is everyone talking about it? GameStop is a chain of US videogame stores publicly listed on the New York Stock Exchange. They’re the parent company of the EB Games, which can be found in shopping centres and malls across Australia and New Zealand.
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