In recent years, the GameStop scandal has been making headlines as one of the biggest stock market controversies in history. A group of novice traders on Reddit pooled their funds in January 2021 to boost GameStop’s stock price in an audacious attempt to take on Wall Street hedge funds betting against the company (Umar et al., 2021). This event has raised important questions about the ethics and responsibility of all players involved in the stock market and highlighted the need for better strategic planning in this complex industry.
The amateur traders on Reddit were using their buying power to intentionally drive up the stock price and harm the hedge funds who were betting against the company, which could be considered unethical. On the other hand, the hedge funds were engaging in a practice known as “short selling”, which is betting against a company and can also be seen as unethical (To, Treepongkaruna, & Wu, 2018). It can drive down the stock price and affect the company and its investors.
Furthermore, the GameStop scandal highlights the need for better strategic planning in the stock market. The hedge funds had bet heavily against GameStop, not anticipating the power of amateur traders to organize and drive up the stock price. Better risk management and the avoidance of future scandals could have resulted from a more effective strategic plan in the financial industry that considered amateur traders’ potential to organize and influence the stock market.
A more effective strategic plan that takes into account the ethics and social responsibility of an organization could have prevented the GameStop scandal from happening. For example, hedge funds could have considered the impact of their short selling strategies on the wider market and the potential consequences for ordinary investors. They could have implemented risk management measures to mitigate the potential losses from a short squeeze.
In addition, a more effective strategic plan in the financial sector could include a greater emphasis on ethics and social responsibility. A plan that prioritizes ethical behavior and responsible decision-making could help prevent future scandals and protect both individual investors and the overall stability of the stock market. It could also help to build trust in the financial sector and increase public confidence in the stock market.
Predatory trading’s legality depends on how widely accessible and pertinent the information it uses is. After the GameStop incident, regulators only recently began to consider regulating some predatory trading practices (Sobolev & Clunie, 2022). However, the resulting financial losses can harm people, organizations, and markets. The authors argue that leaders in the financial sector must prioritize ethical behavior and responsible decision-making in order to prevent future scandals and maintain public trust in the industry. Therefore, the GameStop scandal is a reminder of the importance of ethical leadership in business. In this regard, an effective strategic plan would have considered the organization’s broader social and environmental responsibilities. For instance, hedge funds could have considered the impact of their short-selling strategies on the wider economy and the potential consequences for ordinary investors and the wider community.
In conclusion, the GameStop scandal serves as a wake-up call for organizations to re-examine the ethics and social responsibility of their strategic planning. Although the increase in the stock price may be seen as a victory for individual investors, it is crucial to take into account the possibility of market manipulation and an unequal distribution of risk and reward. A thorough investigation of these moral issues can help to guarantee an open and honest market for all participants. A more effective strategic plan that takes into account these considerations can help prevent similar controversies and contribute to a more sustainable and equitable future for all.
References
Sobolev, D. & Clunie, J. (2022). Predatory trading: Ethics judgments, legality judgments and investment intentions. Review of Behavioral Finance. Web.
To, T. Y., Treepongkaruna, S., & Wu, E. (2018). Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector. Journal of International Financial Markets, Institutions & Money, 54, 114-129. Web.
Umar, Z., Gubareva, M., Yousaf, I., & Ali, S. (2021). A tale of company fundamentals vs sentiment driven pricing: The case of GameStop. Journal of Behavioral and Experimental Finance, 30. Web.