The professor explains the economics of short-selling and meme stocks.
Last month, a group of amateur investors coordinated on Reddit to buy shares in GameStop after realizing that hedge funds were trying to make a profit by betting against the company's share price. Bruce Sacerdote '90, the Richard S. Braddock 1963 Professor in Economics, explains the situation and the economic effects of short-selling and meme stocks.
"In some ways this was an interesting phenomenon because it was such a meteoric rise, but in reality, these kinds of bubbles have been happening for 500 years," says Sacerdote. "People were buying it because it was going up, just like the tulip bubble, but it didn't take very long for reality to take hold."