Investor Impatience and Financial Markets: the Case of the Short Squeeze of Meme Stocks

Abstract

In this paper, we provide a system of equations to measure investor impatience in financial markets. As in physics, we propose that there exists a measurable force created by external market factors, including investor impatience, which we equate with gravitational force. Using a physics-based Eulerian fluid flow system of equations, we model this force and associated energy conservation equation. We test this hypothesis using minute-by-minute data from meme stocks during a unique market event, the GameStop short squeeze of January 2021. Aside from the effect created by intrinsic market forces, the resulting parameters provide evidence of external force acting on stock prices. We further extend our research to the 2010 flash crash, showing that the system captures external influence on market behavior.