On the Efficiency of Meme Stocks

Abstract

Meme stocks have received a lot of attention in the media from both investors and regulators in recent months, particularly following the GameStop episode. The power of the crowd, coupled with unprecedented coordination, raises obvious questions about the impact of these social media traders on market efficiency. We construct two meme stock indices based on stocks whose purchase the Robinhood app restricted during the GameStop episode. We provide evidence of meme stocks’ market efficiency, and particularly during the COVID-19 crisis. Our result indicates, perhaps contrary to some early speculation, that this new influx of highly connected retail investors improves efficiency.