Hedge funds suffered their worst day in recorded history on the stock market Wednesday, caused in large part by the WallStreetBets (WSB) Reddit users who sent the price of GameStop shares skyrocketing.
Hedge funds took cash out of the market at the fastest rate since 2008 on Wednesday, according to Bloomberg. Money managers experienced a “negative alpha,” or below-market return, of 3.1%, the business outlet reported. (RELATED: How A Rabble Of Anonymous Redditors Stuck A Thumb In Wall Street’s Eye)
Wow. By one measure, yesterday was the worst day in history for equity hedge funds. https://t.co/DSj72ryYFd pic.twitter.com/gDypRszPfh
— Joe Weisenthal (@TheStalwart) January 28, 2021
Short-sellers of GameStop, investors who bet that the price of the stock would go down, had reportedly lost more than $5 billion dollars through Wednesday. Retail investors in the WSB community executed a “short squeeze” on the stock in recent days, meaning they purchased shares to drive the price up and cause the hedge funds that shorted the stock to lose big on their investments.
Things turned around somewhat Thursday, according to Bloomberg. The S&P 500 was up about 1% and GameStop’s price fell almost 50% during normal market hours after several investing platforms blocked users from purchasing more shares.
Other stocks, like AMC, BlackBerry, and Nokia were also restricted by trading platforms after they were targeted by WSB and other retail investors as well. The Biden administration and Securities and Exchange Commission are both monitoring the situation.