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What’s Different About the GameStop Bubble?

By conspiring to drive up struggling companies’ stock prices, GameStop investors believe they beat Wall Street at its own game. But there are no clear-cut heroes or villains in this story, just some investors who will be able to weather their losses better than others.

CAMBRIDGE – In the last week of January, the price of stock in GameStop – an ailing brick-and-mortar video-game retailer – soared 323% for the week and 1,700% for the month. Nothing happened within the company to drive the increase; its fundamentals remain unchanged. It was a speculative bubble – but with a twist.

With any bubble, investors who get in and out at the right moment make a lot of money, while those who get in too late or stay too long suffer large losses. Participating in a speculative bubble is thus like playing roulette in a casino, with the financial-services companies (like Charles Schwab) and retail-investment platforms (like Robinhood) acting as the “house.”

But the GameStop bubble is unusual, because it challenges both of the most common interpretations of financial markets. The first interpretation is that financial markets efficiently allocate capital to enterprises that have strong economic fundamentals and away from those that do not. The second is that big Wall Street traders speculate in ways that destabilize markets, making unseemly profits at the expense of the little guy.

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