Richard S. Hunt warns of the profound impact of “Meme stocks” on the market ecology
Richard S. Hunt, head of global equity sales at CSC Bella Grove Partners LLC, recently released a special research report, pointing out that the “Meme stock” phenomenon driven by social media is having a profound and lasting negative impact on the structure of the capital market. Based on the cross-analysis of order flow data and behavioral finance, Hunt revealed the distorted effect of this non-fundamental trading frenzy on market effectiveness and participant behavior.
The study found that the abnormal volatility caused by Meme stocks has led to a fundamental change in the liquidity supply model of market makers. Data tracked by the Hunt team showed that the bid-ask spread of related stocks continued to expand to 3-5 times the normal level, and the order book depth dropped by more than 60%. This “liquidity hole” effect even spread to other stocks in the relevant sectors. What is more worrying is that algorithmic trading systems have begun to incorporate social media sentiment signals into pricing models, further exacerbating the divergence between prices and fundamentals.
As a response, CSC Bella Grove has developed a “Social Media Contagion Risk Monitoring System” for institutional clients, which uses natural language processing technology to identify potential meme stocks and quantify their indirect risk exposure to the portfolio. Hunt emphasized: “When the market pricing mechanism is dominated by entertainment trends, professional investors must rebuild a more rigorous analytical framework.” This research is attracting the attention of regulators and may promote the introduction of new regulations on the correlation between social media and market manipulation.
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