Opinion Essay: The Media’s coverage of GameStop’s stock craze
Mainstream and unconventional media platforms play a major role in reporting and describing movements and political events since the beginning of printed newspapers.
Today, the media market is so vast and has such an enormous influence on the public that mainstream corporations can easily sway the public into any sort of act or belief. At the end of the last decade, the world has faced more social issues and disputes than ever before since the European wars.
Mainstream and unconventional media have always been playing an important part in reporting events and informing the public of the movements in every aspect of life. Society depends on these media as an informant of facts and source of knowledge on recent events. It is required from the media that codes of conduct, morality, and ethics are respected.
Last year of the past decade that for many were supposed to be groundbreaking and signify the beginning of a new chapter was more like an epilogue of King’s book, the horror in all of its terrifying glory. Henceforth, the question is how did our media handle it? Was reporting of petrifying pandemics close or distant to the facts? How the media forged and created the public’s view on the social dispute stories? There are many queries and in few cases, morality and ethics do not matter as much as the number of shares on social media and emotions that follow it.
Arguing which event of the last year had the most significant impact is quite a conundrum. The covid-19 pandemic is still destroying a lot of lives and demolishing the world’s economy. However, one recent event has shaken up Nasdaq Stock Market and media coverage left a lot to question in regards to ethics, morality, and journalistic principles. The narrative and langue that were used by the news outlets are noteworthy of examination since it shows particular flaws within American mainstream media.
The story of GameStop stocks is one of the most bizarre events that happened this year. Hedge fund (Melvin Capital) shorted positions on the video games reseller GameStop. This means if the value of GameStop goes down Melvin Capital makes a profit. Short selling means that one party is borrowing stock at for example ten dollars a share and later sells it for five dollars which means they have to return five dollars and profit from the price difference at the deadline of borrowed share. In short, once one party borrows stock at a certain price, they have to return the current value of the stock at the moment of expiry of borrowed share. On paper, it seems like a good deal but in reality, this type of financial strategy is bankrupting companies because the value of their stock is going down. Since the pandemic many resellers were on the brink of collapse, GameStop which mostly makes money by selling digital copies of video games had to close all of its shops due to lockdown. The company was struggling to survive and Melvin Capital wanted to push them further toward bankruptcy and make millions on it.
This type of stock playing is very much well-known on Wall Street and has abused countless struggling companies, although what seems to be like a perfect strategy to profit off dying companies has one significant flaw. If investors started to buy shares of GameStop the price would go up because of higher demand. Hedge funds can only make a profit if the price is going down but if the stock’s value goes up they will have to pay the difference on the price that they borrowed shares in the beginning.
Mainstream media, social media, and online blogs have a significant impact on the stock market. Internet platforms intertwine information regarding pricing and changes in the stock market. In today’s market, social media are crucial for the stock exchange. “More recently, new ways of sharing information and interacting with people have appeared due to the growth of digital technologies and rise in the use of the Internet. Internet users share information through social media, which comprises social networks such as Twitter, blogs, or forums such as Yahoo! Finance message boards, news Websites such as The Wall Street Journal, and so forth. In this sense, investors, companies, institutions, and, at a more general level, society as a whole use social media to obtain and share information.” (PINEIRO-CHOUSA, VIZCAINO-GONZALEZ, AND PEREZ-PICO, INFLUENCE OF SOCIAL MEDIA OVER THE STOCK MARKET, page 101, Psychology and Marketing Volume 32 Issue 1, January 2017)
The internet forum Reddit that hosts a group called ‘WallStreetBets’ which is known for its risky approach to the stock market noticed that Melvin Capital tries to bully GameStop into bankruptcy and make a profit by destroying a company that many have sentimental memories of buying video games from. They all decided to help GameStop by buying all the shares so it will drive prices high and once the borrowed stocks hit the expiry date Melvin Capital will have to pay for it and they will lose a lot of money. Hedge funds in the spend of two months lost almost $2 billion. In the first quarter of 2021, Melvin Capital lost 49% of its whole portfolio because of GameStop. Just like in the story of David and Goliath, a group of small investors from Reddit defeated a corrupted Wall Street hedge fund.
Reddit subgroup WallStreetBets, since the beginning of the whole GME movement, has become the most popular feed on the website. Currently, WallStreetBets has almost 10 million followers. “Two recent studies identify interesting relationships between trading volume and measures of communication activity. Antweiler and Frank (2004) study messages in Internet chat rooms focused on stocks, characterizing the content of the messages as “buy,” “sell,” or “hold” recommendations. Although they do not find a statistically or economically significant effect of “bullish” messages on returns, Antweiler and Frank (2004) do find evidence of relationships between message activity and trading volume and message activity and return volatility.” (PAUL C. TETLOCK, Giving Content to Investor Sentiment: The Role of Media in the Stock Market, page 1141, 1. Theory and Background, THE JOURNAL OF FINANCE • VOL. LXII, NO. 3 • JUNE 2007) Reddit and other online forums give people the ability to create movements and share crucial information. Messaging and posting were remarkable in the story of GameStop. Wallstreetbets users were motivating each other through memes and communicating in a sort of language that none older than first millennials could understand.
Moreover, the type of emotions that media intertwine in their narrative regarding particular stock has a significant influence on possible price shifting. Especially if the media expels with pessimism. “High values of media pessimism induce downward pressure on market prices; unusually high or low values of pessimism lead to temporarily high market trading volume. Furthermore, the price impact of pessimism appears especially large and slow to reverse itself in small stocks. This is consistent with sentiment theories under the assumption that media content is linked to the behaviour of individual investors, who own a disproportionate fraction of small stocks.” (PAUL C. TETLOCK, Giving Content to Investor Sentiment: The Role of Media in the Stock Market, page 1166, 1. Theory and Background, THE JOURNAL OF FINANCE • VOL. LXII, NO. 3 • JUNE 2007). The way narrative is created about a certain stock by media has an impact on the value and price of shares. In the case of GameStop, the media’s coverage was highly pessimistic trying to portray an image of failed freezy.
The coverage of GameStop freezy by mainstream media was one of the most unethical and immoral reports in the last year. News stations such as CBS, Bloomberg, CNN, and FoxNews were drawing the narrative that Reddit manipulated stocks and Melvin Capital is nothing but a victim in this story. What is even worse, the media were openly attacking small investors for trying to win against billionaires.
Fox News created a narrative on how people are manipulated and see hedge funds as ‘evil’. Moreover, the mainstream news station portrayed as sketchy story that Reddit is “attacking” hedge funds. Fox’s guest Adam Guillette, President of Accuracy in Media said in the interview with Stuart Varney: “The media loves to vilify hedge fund managers as if they’re the source of all the evil in this world. However, the middle class and working class are also impacted by these market movements because pensions invest in hedge funds.” (Catie Perry, CP, 2021, ‘GameStop stock frenzy media coverage vilified hedge funds: Accuracy in Media president’) The language behind this is noteworthy in the examination. Even though the media loves a good crisis and Adam Guillette points out the Reddit investors are not only attacking hedge funds but also the middle and working class is a too broad oversimplification. Such language instantly sets hedge funds as ‘victims’ of Reddit attacks but in fact, online blog amateur investors were just doing the same that Wall Street giant has been doing for over a decade. According to Guillette, when the hedge is losing billions the pensions of the elderly are affected by it. Which by any means this is just too inclusive an assumption to make on public television.
Articles on how GameStop (Nasdaq: GME) is finished and its bad investments flooded the internet. Newspapers and news stations such as Wall Street Journal and CBSNews were calling people to stop buying by writing how much money they will lose. The media went so far that they were calling the whole event a ‘scam’ and ‘market manipulation’. The coverage was full of misleading information and lying to the public just to save hedge funds. People realize that this is impartial and unfair to the public and a massive wave of negative criticism fell on CBS and Bloomberg for their reporting. For example, CBSNews wrote: “GameStop shares surged before the start of U.S. trade on Thursday, with the stock more than tripling over the last two days. The so-called meme stock, publicly listed companies that have generated buzz via social media networks like Reddit, isn’t profitable and its sales tumbled 30% in the third quarter.” (Aimee Picchi,
GameStop shares up 250% in two days. Here we go again?, February 25th, CBSNews). This article by CBSNews journalist uses the fact that for a short amount of time the value of GME stock went down to set people to vary and most likely try to sway investors from buying more shares. What was portrayed as ‘the end of GME’ in fact was just a bump in the road due to many other factors such as natural price correction and most importantly the fact that trading platform Robin Hood blocked the possibility to buy more GME stocks. The stock market is highly affected by its environment and circumstances, the facts that most of the American news overlooked while covering GME.
Wall Street Journal wrote an opinion piece titled “Everybody Calm Down” which portrayed Reddit users as lonely men in their basements. “Things aren’t looking good for those of us who hoped the GameStop frenzy would quickly give way to GameStop fatigue. We have seen pretty much every take imaginable — about hedge-fund managers, trading apps, and lonely men in their basements. Politicians are calling for investigations by congressional committees and regulators. The CFTC has opened a parallel civil investigation and the SEC has begun reviewing social media and Reddit posts possibly intended to inflate GameStop’s stock price, potentially as part of a “pump and dump” scheme.” (Ankush Khardori, “Everybody Calm Down”, WallStreet Journal Opinion, February 11th, 2021,). A noteworthy fact that Wall Street Journal overlooked is that congress indeed opened an investigation regarding market manipulation but not against Reddit as they suggest. Another captivating aspect of the Wall Street Journal article is the type of language it uses. Juxtaposing ‘hedge funds managers’ as people that are highly successful and ‘lonely men in their basements’ as losers and less fortunate, just shows how the media wanted to paint a narrative of the GME stock freezy. The main man behind the Reddit movement, Keith Gill who’s married and has children, made $14 million on GameStop, personally, it’s difficult to call such individual ‘lonely men in the basement’.
News coverage in the event of GameStop stock short-selling, was an example of how the media can manipulate, lie and mislead the information if it doesn’t go with their business and political agenda. Most of the mainstream media is funded by private investors, which can be argued why it has been supportive of hedge funds. Mainstream media have already proven to be alloying politics if it works for the business.
Juxtaposing both Covid-19 and GameStop news coverages shows two different reasons behind events reporting. Pandemic needed an extra fear factor to make people understand the seriousness of the issue and GameStop was a pure misleading and lying scheme to cover for people that finally had their piece of justice for corruption and manipulating the market for a long time. In the case of GameStop, mainstream news acted absolutely against the code of conduct and principles of journalism. The language and context that media were used throughout the coverage of GameStop freezy, proves that in some stories media can’t be trusted or taken seriously.
Concluding, the coverage of American mainstream media such as CBS News, Wall Street Journal, and Fox News left a lot to question. The language and narrative that media created regarding Reddit bankrupting Wall Street hedge fund with the single stock. The media gave it all to demotivate, vilify and slander small amateur investors that we're able to beat Wall Street at their own game. In my opinion, media should be impartial and unbiased but in this particular story choosing the side of the people on the right path. Last year was for many terrible and destroyed financially countless households, at same time billionaires got richer while millions of Americans starved and faced bankruptcy. At this time, the public needed an external force to protect and help them but mainstream media choose to serve the ones that do not deserve our empathy and pity.
Reference:
(PINEIRO-CHOUSA, January 2017, VIZCAINO-GONZALEZ, AND PEREZ-PICO, INFLUENCE OF SOCIAL MEDIA OVER THE STOCK MARKET, page 101, Psychology and Marketing Volume 32 Issue 1,)
(PAUL C. TETLOCK, JUNE 2007, Giving Content to Investor Sentiment: The Role of Media in the Stock Market, page 1141, 1. Theory and Background, THE JOURNAL OF FINANCE • VOL. LXII, NO. 3 •)
(PAUL C. TETLOCK, JUNE 2007 Giving Content to Investor Sentiment: The Role of Media in the Stock Market, page 1166, 1. Theory and Background, THE JOURNAL OF FINANCE • VOL. LXII, NO. 3 •
(Aimee Picchi, February 25th, 2021, ‘GameStop shares up 250% in two days. Here we go again?’, CBSNews)
(Ankush Khardori, February 2021, “Everybody Calm Down”, WallStreet Journal Opinion).
(Catie Perry, CP, 2021, ‘GameStop stock frenzy media coverage vilified hedge funds: Accuracy in Media president’)
