In the months leading up to January, institutional investors, such as large hedge funds, were short-selling the stock-an investment strategy based on speculation that a company’s share value will decline. But the recent frenzy to purchase GameStop shares conflicts with this principle.īetween December 2020 and January 2021, the value of GameStop’s shares rose 1,700 percent from its all-time low of $2.57 per share to its high of $347.51. In other words, because investors will act in their best interest they will, in theory, seek opportunities for profit and avoid high risk propositions that may expose them to significant losses. Moreover, Yahya and Chiu explain that traditional economic thought rests upon the assumption that investors will behave rationally. Notably, securities laws are not meant to protect investors from financial losses, Yahya and Chiu insist. Yahya and Chiu explain that existing securities laws are meant to protect investors from fraud by preventing market manipulation through general practices, such as “pump and dump” and “cyber-smear” campaigns, and through fraudulent practices, such as insider trading. According to Yahya and Chiu, online chatrooms and trading platforms allow retail investors to access and create information about peer behavior and popular value that existing securities laws did not anticipate. Yahya, a professor at the University of Alberta Faculty of Law, and Victoria Chiu suggest that securities regulation must adapt to the modern era of investor behavior, which is influenced by the digital information exchange. Securities laws are designed to protect investors-but which ones? The rise and fall, and rise again, of GameStop and other such “meme stocks” has led legislators, policymakers, and scholars to consider shortcomings in existing securities laws.
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