GameStop Financial Essay

Your assignment is to write an essay from the perspective of a financial historian to explain the events of Gamestop’s stock in early 2021. The essay should explain these events through the lens of this class. “financial behavior”

The essay should be as detailed as possible but also relatively brief; somewhere in the range of 3-5 pages.

The intended audience for this essay is someone who is familiar with basic finance concepts but has not necessarily taken a class on behavioral finance. As such, it should explain the events and their drivers in detail, providing supporting evidence whenever possible. Superior essays will use these events as real-world examples to explain as many of the relevant concepts

Please refer to the assignment instructions for further details below: (IMPORTANT TO READ THEM CARFULLY IN DETAILS PLEASE)

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Background
The meteoric rise in Gamestop’s price from a few dollars to more than $300 in the early
weeks of 2021 made GameStop (ticker: GME) a household name not just among video game
aficionados, but the general public.

GameStop is a retail seller of video games, consumer electronics and wireless services with
over 5,000 retail stores and online operations. It has not performed too well in recent
years. Its revenues have steadily declined each of the last five years, with 2020 revenues
falling by 22% to $6.5 billion, which is surprising in the tech sector. It lost about $450
million in 2020 and in excess of $1 billion over the past two years. Against this lackluster
financial backdrop, GameStop’s market capitalization skyrocketed from a few hundred
million dollars just a few weeks ago to more than $24 billion, rising more than 15-fold in the
first few weeks of January 2021 alone.

Trading activity in GameStop also went through the roof. For a company with a public float
of about 51 million shares, average daily trading volume climbed in excess of 90 million
shares. Short interest also exceeded the total float. Many of these statistics are an order of
magnitude greater than for similar stocks. Together, the sudden rise in the share price, an
enormous amount of trading in shares, and the large amount of short interest in the
company all have led many to speculate the underlying causes.

I have provided you with a list of articles and references to help get you started (attached) However,
you are encouraged to use whatever sources you can access, I
have also included a few questions to help get you started, but you are not required to
answer these questions. Be creative:

1. What does GameStop do as a company? Why do you suppose it attracted lots of
short-selling activity?

2. A notorious short-seller (Citron) made several public statements about GameStop’s
prospects. Do you find Citron’s arguments compelling? Why or why not?

3. What is “WallStreetBets” and what role did it play in this episode? What was the
investment thesis of individuals recommending that others buy shares? Did you find
these arguments compelling?

4. What societal or cultural factors, if any, seemed to contribute to this episode?

5. What returns did short-sellers earn in the immediate versus longer-term window
after the report? If there are any differences, comment on why these differences are
important.

6. How does this example relate to the Shiller model discussed in class?

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