Shares of AMC Entertainment Holdings Inc. and GameStop Corp. rallied Friday, a day after registering their biggest declines in a week during Thursday’s session.
Both stocks saw massive volatility last week amid a meme-stock rally fueled by the return of trader Keith Gill, also known as “Roaring Kitty,” to social media after a hiatus of several years.
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AMC AMC shares ended Friday’s session up 6.4% after ending Thursday’s session down 10.1% — their biggest decline since May 16, when the stock fell 15.3%. GameStop GME shares gained 3.7% Friday after ending Thursday’s session down 13.3% — their biggest decline since May 17, when the stock fell 19.7%.
Last week’s meme-stock frenzy, which sent shares of AMC and GameStop skyrocketing before paring back their gains, appeared to have calmed down earlier this week.
Related: Riding the Roaring Kitty roller coaster: Why GameStop and AMC meme madness is an ‘outlier event’
Victor Ricciardi, a visiting finance professor at Ursinus College and co-author of the book “Advanced Introduction to Behavioral Finance,” described the meme-stock rally as “an outlier event.”
Several factors contributed to the meteoric rise in meme stocks last week, according to Jason Pride, chief of investment strategy and research at Glenmede. “To start, many were heavily shorted stocks,” he wrote in a note released Monday. “When prices started to rise, investors with short positions were forced to become buyers to either close out their positions or hedge their exposure.
“In addition, stock-option sellers needed to buy shares as well to hedge their exposures as the price continued to rise, further boosting demand,” he added. “On top of that, the sensationalism surrounding these securities may have also contributed to a ‘fear of missing out’ (aka FOMO) that contributed to a self-perpetuating, sentiment-driven rally.”
Related: These behavioral trends drove the GameStop and AMC meme-stock rally
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.”
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