The stock prices of AMC Entertainment Holdings Inc. and GameStop Corp. had a strong recovery on Friday, following a day earlier when they saw their largest weekly decreases.
Last week, during a meme-stock boom, both equities suffered extreme volatility as trader Keith Gill, popularly known as “Roaring Kitty,” returned to social media following a few-year break.
AMC AMC, +6.37% shares saw a 6.4% increase on Friday following a 10.1% loss on Thursday, the most since May 16 when the company fell 15.3%. After closing Thursday’s trading session down 13.3%, GameStop GME, +3.71% shares saw a 3.7% increase on Friday. This was the largest fall since May 17, when the company fell 19.7%.
It seemed earlier this week that the meme-stock frenzy of last week, which sent shares of AMC and GameStop soaring before retreating their gains, had subsided.
The meme-stock rise was characterized as “an outlier event” by Victor Ricciardi, a visiting finance professor at Ursinus College and co-author of the book “Advanced Introduction to Behavioral Finance.”
According to Jason Pride, head of investment strategy and research at Glenmede, a number of variables had a role in the explosive rise in meme stocks last week. “Many were heavily shorted stocks at the beginning,” he stated in a memo made public on Monday. Investors who had short positions were compelled to convert to buyers in order to liquidate their holdings or reduce their exposure when prices began to increase.
“Demand was further increased by the fact that stock-option sellers had to purchase shares in order to hedge their exposures as the price kept rising.” Furthermore, it’s possible that the sensationalism around these securities fueled a sentiment-driven, self-perpetuating rally by creating a “fear of missing out” (FOMO).
Short interest as a percentage of AMC’s public float of shares is 19.3%, according to the latest exchange data, while GameStop’s short interest is 25.5%.
Pride urged investors to avoid the meme-stock hype. “Investors should avoid getting caught up in the hype around meme stocks, as they may be subject to poor longer-term prospects,” he wrote in Monday’s note. “In general, it is typically favorable to avoid strategies focused on companies with large outstanding short interest.”
