GameStop Is Not the Revenge on Wall Street

Commentary The short squeeze forced on GameStop and other stocks through Reddit’s WallStreetBets has generated a massive media frenzy against hedge funds and comments all over social media hailing the decision of a group of small investors to trigger a huge repurchase of a beaten-down stock. The first thing we need to understand is that hedge funds play an essential role in markets. They provide liquidity, and in many cases are the ones that buy when the largest proportion of equity and bond markets—long-only investment funds—panic and sell massively. It’s interesting to see how the average citizen and the media tend to blame hedge funds for market crashes when these investment firms account for less than 3 percent of global assets under management. When markets crash it’s not because of hedge funds’ attacks, but because large long-only funds sell. However, the activity of shorting (borrowing a stock and selling it …