The shares of AMC Entertainment Holdings Inc. and GameStop Corp. rose Friday, a day after recording their biggest declines in a week during Thursday’s session.
Both stocks saw huge volatility last week amid a rally in meme stocks, fueled by the return of trader Keith Gill, also known as “Roaring Kitty,” to social media after a several-year hiatus.
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AMC AMC shares ended Friday’s session down 6.4% after closing Thursday’s session down 10.1% — their biggest decline since May 16, when the stock fell 15.3%. GameStop GME shares rose 3.7% on Friday after ending Thursday’s session down 13.3% — their biggest drop since May 17, when shares fell 19.7%.
Last week’s meme stock frenzy, which sent shares of AMC and GameStop soaring before paring their gains, appeared to have calmed down earlier this week.
Related: Riding the Roaring Kitty roller coaster: Why GameStop and AMC meme craze is an ‘extraordinary event’
Victor Ricciardi, a visiting professor of finance at Ursinus College and co-author of the book “Advanced Introduction to Behavioral Finance,” described the meme stock rally as “an outlier.”
According to Jason Pride, head of investment strategy and research at Glenmede, several factors contributed to the meteoric rise in meme stocks last week. “To start with, many stocks were heavily shorted,” he wrote in a note released Monday. “As prices started to rise, shorted investors were forced to become buyers to close their positions or hedge their exposure.
“In addition, stock option sellers also had to buy shares to hedge their risks as the price continued to rise, further increasing demand,” he added. “Additionally, the sensationalism surrounding these securities may also have contributed to a ‘fear of missing out’ (also known as FOMO) that has contributed to a self-sustaining, sentiment-driven rally.”
Related: These behavioral trends were the driving force behind GameStop and AMC’s Meme stock rally
The short interest as a percentage of AMC’s public stock price is 19.3%, while GameStop’s short interest is 25.5%, according to the latest stock market data.
Pride urged investors to avoid the meme stock hype. “Investors should avoid getting caught up in the hype surrounding meme stocks as they may have poor longer-term prospects,” he wrote in the note on Monday. “In general, it is usually beneficial to avoid strategies that target companies with large outstanding short interest rates.”
