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Policy Discussion Paper, Vol. PDP, No. 2021-01, March 2021 Crossref
“YOLOing the Market”: Market Manipulation? Implications for Markets and Financial Stability

Since the start of the Covid-19 pandemic in 2020, retail investors have increasingly participated at higher rates in the U.S. equities markets, particularly in day trading and short-term trading. In January 2021, amid a surge of online postings and interest by retail investors who use free trading apps, GameStop stock began moving up and down by billions of dollars a day—resulting in big gains for some investors and billions in losses for others. To the extent the proliferation of free trading democratizes the market, increases the diversity of participants able to participate in the market, and contributes to vibrant and healthy markets, this activity has positive benefits. These recent developments pose new questions for policymakers, such as whether the ability for users to gather together on social media and move the price of a financial product—for reasons unrelated to market news or market fundamentals—is a larger vulnerability, whether this activity fits into tools to prevent or stop market manipulation or not, and if there is a gap in regulatory ways to address such activity.

Policy discussion papers are not edited, and all opinions and errors are the responsibility of the author(s). The views expressed do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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