Social Media, Securities Markets, and Expressive Trading

I’ve addressed the recent social-media-driven retail trading in stocks like GameStop in prior posts (here and here). In both posts, I focused on evidence that at least some of this trading seems to pursue goals other than (or in addition to) profit. For example, some of these retail traders claim that they are buying and holding stocks as a form of social, political, or aesthetic expression. My coauthors Jeremy Kidd, George Mocsary, and I recently posted a forthcoming article on this subject, Social Media, Securities Markets, and the Phenomenon of Expressive Trading, to SSRN. The article introduces the emerging phenomenon of expressive trading. It considers some of the challenges and risks expressive trading may pose to issuers, markets, and regulators--as well as to our traditional understanding of market functioning. Ultimately, the article concludes that while innovations like expressive trading "can be disruptive and demand a reimagining of the established order," market participants, issuers, and regulators would be wise to pause and observe before rushing to adopt defensive strategies or implement reforms. Here’s the abstract:

Commentators have likened the recent surge in social-media-driven (SMD) retail trading in securities such as GameStop to a roller coaster: “You don’t go on a roller coaster because you end up in a different place, you go on it for the ride and it’s exciting because you’re part of it.” The price charts for GameStop over the past few months resemble a theme-park thrill ride. Retail traders, led by some members of the “WallStreetBets” subreddit “got on” the GameStop roller coaster at just under $20 a share in early January 2021 and rode it to almost $500 by the end of that month. Prices then dropped to around $30 dollars in February before shooting back to $200 in March. But, like most amusement park rides that end where they start, many analysts expect market forces will ultimately prevail, and GameStop’s share price will soon settle back to levels closer to what the company’s fundamentals suggest it should. Conventional wisdom counsels that bubbles driven by little more than noise and FOMO—fear of missing out—should eventually burst. There are, however, signs suggesting that something more than market noise and over-exuberance is sustaining the SMD retail trading in GameStop.

There is evidence that at least some of the recent SMD retail trading in GameStop and other securities is not only motivated by the desire to make a profit, but rather to make a point. This Essay identifies and addresses the emerging phenomenon of “expressive trading”—securities trading for the purpose of political, social, or aesthetic expression—and considers some of its implications for issuers, markets, and regulators.