Author(s)

Weizhao Wu

Corresponding Author

Weizhao Wu

Abstract

In early 2021, the meteoric rise and dramatic collapse of GameStop’s stock captured global attention, as retail investors united via online platforms to confront Wall Street short-sellers. This paper explores the GameStop short squeeze as a complex interplay of behavioral finance, social media influence, and market dynamics. It examines how Reddit’s r/WallStreetBets community leveraged collective action, emotional contagion, and information cascades to drive GME’s price from under $4 to $483, defying conventional valuation metrics. Key psychological mechanisms such as herding behavior, overconfidence, and confirmation bias were amplified through online interaction, leading to unsustainable price surges. The study also highlights how institutional players adapted and intervened in response, and how trading platforms like Robinhood introduced controversial restrictions. This unprecedented market event not only challenged traditional assumptions about investor rationality but also highlighted the disruptive capacity of decentralized online communities. The case emphasizes the need for regulatory frameworks that can adapt to the rapid pace of information diffusion and emotionally charged trading environments. As digital platforms continue to empower retail participants, understanding the psychological and structural drivers of such episodes becomes essential. The GameStop phenomenon reveals deep-rooted vulnerabilities in modern financial markets and underscores the need for updated market supervision, investor education, and trading platform accountability. Ultimately, it is not merely a story of speculative frenzy, but a pivotal case illustrating the evolving power of online-driven collective action in financial markets. Future market stability may depend on a balanced integration of behavioral insights, real-time surveillance, and equitable trading access to ensure resilience against similar speculative surges.

Keywords

GameStop; Retail Investors; Wall Street Institutions; Herding Effect; Financial Bubble