The meme stock phenomenon remains a persistent force in equity markets, with retail investors continuing to exert significant influence – particularly in the small-cap segment.

While it has been several years since the first GameStop phenomenon in 2021, an important question remains: How can institutional investors systematically identify potential retail-driven short squeeze events? In this article, we introduce a framework that integrates proprietary and alternative data to identify retail-driven short squeeze risks.

Specifically, we combine securities lending market data from S&P Global with proprietary measures of digital media sources and Reddit-based social media chatter – including emoji sentiment and short squeeze intensity.
 

Key findings

• Our findings show that the traditional digital media sentiment and Reddit chatter – which we term the “Media Short Squeeze Score” – can provide insights into retail investor activity.
• A historical analysis finds stocks identified as top short squeeze candidates (“Alert”) using this framework observed an average maximum price increase of ~33 percent over the following month.
• We introduce a framework to combine the Media Short Squeeze Score with securities lending data that successfully flagged historical short squeezes in names like GameStop, Carvana, Opendoor Technologies and Rocket Lab USA.
• We examine a measure called “draw up,” defined as the maximum return from the price over the next 20 trading days, in excess of market returns.