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Does retail investors beat institutional investors?——Explanation of game stop’s stock price anomalies

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Listed:
  • Bin Gao
  • Huanhuan Hao
  • Jun Xie

Abstract

This paper studies the relation of information cost, retail investor sentiment and asset pricing. Our motivation to study this model is to learn why retail investors could move asset price away from fundamental values. In the model, the institutional investors are pessimistic and the retail investors are optimistic, the ratio of the expected utility of informed and rational but uninformed institutional investors increases first and then decreases as the cost of information increases. In addition, a large number of retail investors promoted substantial increases in stock prices. This model provides part of the explanation for the unusually high stock price of Game Stop in early 2021 that retail investors cliqued and confronted institutional investors.

Suggested Citation

  • Bin Gao & Huanhuan Hao & Jun Xie, 2022. "Does retail investors beat institutional investors?——Explanation of game stop’s stock price anomalies," PLOS ONE, Public Library of Science, vol. 17(10), pages 1-19, October.
    • Handle: RePEc:plo:pone00:0268387
    DOI: 10.1371/journal.pone.0268387
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    References listed on IDEAS

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