How 'flows before pros' is disrupting stock markets

Foto: Moe / Flickr.

It seemed inevitable that the populist forces that have disrupted almost everything else in recent years would eventually arrive to democratize investing. But the sheer impact of retail trading has been shocking, primarily to financial professionals who appeared ill-equipped to deal with it.

Organizing via social media, the amateurs have been able to send so-called "meme stocks" like GameStop Corp. soaring, while hedge funds that bet against the chosen companies feel the pain. Some worry that the battle between the "flows" generated by small investors and the "pros," or professionals, artificially pumps stocks higher in a feedback loop that could lead to a collapse. Others worry such wild trading could ruin the purpose of equity markets: the efficient allocation of capital...

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