RICHMOND, Va. (WWBT) - It was an unusual week on Wall Street as video game retailer GameStop’s stocks boomed. The surge was attributed to the online community, Reddit.
“It’s been skyrocketing well beyond where it’s ever been valued in its history,” said Dr. Tom Arnold, a Finance professor at the University of Richmond.
As of Thursday, the stock had risen to hundreds of dollars, whereas it was circling perhaps one-tenth of the value last week. This came about by some finance-savvy Redditors that went up against Melvin Capitol and Citron Research who intended to “short sell,” according to Dr. Arnold.
“This is where you borrow the stock and then you hope to replace it later at a lower price, so this way you’re able to earn money as the stock price goes down,” he said, simplifying it even more. “It’s kind of like if a friend lent you their car and you go and sell it, and when your friend wants it back, and you decide to rebuy the car, hopefully at a lower price.”
But the sudden surge also spilled over to other companies like Nokia, Blackberry, and AMC Theaters. Investing app Robinhood actually had to restrict trading on GameStop and those other companies because of the trading boom.
The new activity even caught Federal attention, with the U.S. Securities and Exchange Commission saying in a statement that they are “aware and monitoring the on-going market volatility.” Dr. Arnold that the SEC might be concerned that the sequence of events leading to the rise in GameStop stock value might elude to market manipulation, which is illegal.
Arnold mentions that while this sort of trading does seem like a fad, it may have started something bigger with smaller, individual investors, adding that “it’s GameStop right now, but it wouldn’t surprise me if six months from now it’s a different stock.”
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