From the US Capitol to Wall Street, the power of social media to mobilise crowds is evident everywhere. It has introduced a new risk to the effective functioning of markets as it has to politics, exposing the limitations of politicians and regulators to manage viral campaigns.
The recent price explosion in the stumbling GameStop was portrayed on the r/WallSteetBets sub-forum on the Reddit platform as a just redistribution that took gains from the pockets of “parasitic” hedge funds that had bet against the struggling US video games retailer into the hands of “ordinary” people.
But the GameStop surge also shows the extent to which financial markets are susceptible to the mobilisation of investment crowds on social media. Investors and policymakers urgently need to understand the implications.