The House Financial Services Committee will hold a hearing on Thursday to discuss recent GameStop stock speculation. The committee will hear from the CEO of Robinhood and other financial services apps that helped bring the game retailer’s stock price to record highs.
Scott Yonker, According to the associate professor of finance at Cornell University’s SC Johnson College of Business, the hearing is unlikely to shed any light on how coordinated trading activities affect markets and “real” prices.
“It’s unclear what the House Financial Services Committee has of its’ Game Stopped? ‘Thursday noon hearing. If Chairman Waters’ January statement is any indication, we can expect a hearing that condemns the hedge fund industry but does little to understand how the use of social media to coordinate trading is likely to affect the U.S. Financial markets or the wellbeing of investors.
“In an article published in the Journal of Finance, my co-authors and I show that professional managers share their information-based businesses with their neighbors. We argue that this is good for the markets, as information-based trading pushes prices down to their “true” prices, helping to distribute capital more efficiently across the economy.
“In contrast, coordinated trading based on noise or vengeance will push prices away from their ‘true’ prices, causing too much capital to flow into companies like GameStop and not enough into small pharmaceutical companies – that could be closest work Covid vaccination. “
Robert Hockett, According to GameStock Speculation, a professor of organizational, financial and monetary law at Cornell’s Law School, the inefficiency of the market in directing the dollar towards “constructive production” is highlighted.
“At the GameStop hearings this Thursday, some important questions will be raised, but unfortunately the most important question is unlikely to be asked.
“The questions that will arise include (a) whether short sales should be more strictly regulated, (b) whether large wholesale hedge funds hide behind self-proclaimed private investors and (c) whether allegedly neutral platforms like Robinhood actually have them an impartial “skin in the game” and must accordingly be carefully regulated under Title VIII by Dodd-Frank – the still strangely ignored part of the “market suppliers” of this law.
“As important as these questions are, another dwarfs them: Why don’t trillions of dollars go into high-wage productive industries and critical domestic infrastructures, but only into high-stakes poker games? However, I doubt that this question will be raised. Until then, we as a nation will continue to spend far too little money on constructive production and far too much money on destructive speculation. “
– 30 –