Friday, March 5, 2021

GameStop and the Phenomenon of Expressive Trading

In a prior post, I reflected on evidence that motives other than profit seeking may be driving some of the recent social-media-driven “meme” trading in stocks such as GameStop. Indeed, many of these traders have publicized that they are buying and holding their positions as a form of social, political, or aesthetic expression.

We typically classify retail traders as either investors or speculators. Investors are those who research a stock’s fundamentals and buy it with the expectation that it will perform well over time. Speculators are less concerned with a stock’s fundamentals than its potential for volatility in price (up or down). A speculator looks to anticipate how other traders in a stock will react to price movements or market events and trade accordingly, sometimes entering and exiting the same position in a single trading session. Though they employ different strategies, the principal goal for both the investor and the speculator is to profit from their trading.

The recent meme-trading phenomenon, however, suggests that a new category of retail trader has emerged, the “expressive trader.” An expressive trader is one who does not trade for profit, but rather to send a message or produce a social/aesthetic effect. Social media has made expressive trading practicable for retail market participants by allowing a large number of small investors to coordinate their trading in real time to deliver their desired message in the form of a measurable impact on the targeted stock’s price.

A consistent message from expressive traders in GameStop has been to protest the Wall-Street elitism that motivated the Occupy Wall Street movement in 2011. In contrast to the Occupy Wall Street movement, however, expressive trading has permitted this message to be brought home with very real economic consequences for the movement’s perceived hedge-fund villains.

Of course expressive trading comes at a price. Expressive traders know the price movement they generate does not reflect a stock’s fundamentals, and that they may incur losses when the likely correction takes place, but they consider the act of sending the message to be worth the cost. Indeed many GameStop traders have demonstrated just such an attitude. As one commentator notes, GameStop retail traders frequently quote Heath Ledger’s Joker character from “The Dark Knight” on their trade-related posts: "It's not about the money; it's about sending a message." Or as another commentator points out, "some investors have publicly said that as long as they can hurt the hedge funds, and hurt the system, that is a benefit to them; they don't care if they hurt themselves." Another retail trader admits to buying into the GameStop surge in the hope of a quick profit, but explains that "when individual investors like him managed to inflict some serious pain on hedge funds, it wasn't about money anymore." Similarly, a delivery driver in Central Florida described her purchase of GameStop shares as a "protest" and she explains that she’s “not selling” as the price declines.

The principal GameStop-related message may be anti-hedge-fund short selling, but future expressive trading may protest companies’ labor practices, lack of board diversity, controversial products, advertising, etc. As one Washington Post op-ed author suggests, "[i]f a corporation's stock plummeted 20-30 percent in a single day, that would send a clear and resounding message to its board of directors, principal shareholders, and senior leadership team, i.e., the decision makers." With all this in mind, we should expect more expressive trading in the future.

In future posts, I will address some potential risks and benefits of expressive trading, its consequences for our traditional understanding of market functioning, and how (if at all) regulators should address it. I am also working on an article concerning expressive trading with co-authors Jeremy Kidd and George Mocsary. We look forward to sharing a draft soon!

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