A tale of company fundamentals vs sentiment driven pricing: The case of GameStop

By means of the wavelet coherence approach, we study the relationship between the GameStop returns and the sentiment driven pricing, as described by the following indicators: twitter publication count, news publication count excluding twitter, put-call ratio, and short-sale volume. The documented impacts of media-driven sentiment suggest that regulators and policymakers should continuously monitor the investing groups on social media platforms as they can create inefficiency in the market. The put-call ratio strongly and positively affects the GameStop returns prior to the peak of the GameStop saga, being one of the drivers of the January skyrocketing prices. Our results also reveal a positive relationship between the GameStop returns and the short sales volume during the GameStop episode, confirming the short squeeze phenomenon. We highlight the importance for the regulators to consider limiting some predatory short-selling practices, namely naked'' short selling, as excessive short selling may move the market towards inefficiency. (C) 2021 Elsevier B.V. All rights reserved.

Automated summary

By using the wavelet coherence approach, the study examined the relationship between GameStop returns and sentiment-driven pricing, finding that the put-call ratio strongly and positively affected GameStop returns prior to the peak of the GameStop saga. The results also confirmed a positive relationship between GameStop returns and short sales volume, highlighting the importance of regulators to consider limiting predatory short-selling practices.