And as the global financial crisis unfolded, of course, VW only suffered further as the demand for new cars collapsed. As the price continued to rise throughout 2007, many hedge funds held the view that VW stock had become overvalued and increased their short positions in the troubled carmaker, which had amassed substantial debt by that time. The Volkswagen-Porsche Short Squeeze happened in the middle of the global financial crisis.īy 2006, Porsche had announced that it wanted to boost its shareholdings of VW and did so by acquiring substantially more stock in the company, which, in turn, began pushing the share price higher. Indeed, right in the midst of the global financial crisis (GFC), when following the collapse of Lehman Brothers investors were panic selling across the world and markets were tanking, the “mother of all short squeezes” arose, as one analyst at the time put it. The entire episode harkens back to the days of October 2008, when Porsche inflicted a similar short squeeze on Volkswagen (VW), its fellow automaker and occasional but long-running business partner. But by driving up the price instead, the Reddit traders inflicted a “short squeeze” on the hedge funds, whereby they would have to purchase the stock at a much higher price and thus incur billions of dollars of losses. ![]() ![]() What’s more, they did this in defiance of major hedge funds on Wall Street that had already deemed GameStop to be overvalued and shorted the stock, meaning that they borrowed stock in order to sell it in the hope that its price would fall, after which they would buy the stock at the lower price and thus secure a sizeable profit. Less than a month into 2021, the world watched in amazement as the stock price of the then-troubled American brick-and-mortar video-game and consumer-electronics retailer GameStop skyrocketed after countless traders, mainly from the popular Reddit sub-forum wallstreetbets, bought up the company’s shares in droves.
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