What do you Meme? Sprott’s Shi Li talks about this new investment phenomenon

Shi Li is an Assistant Professor of Finance who joined the Sprott School of Business in 2019 after completing his PhD in Finance from the University of Manitoba. Not long after joining Sprott, the pandemic shut down the world and created new ways of interacting and doing business. During this time, the meme stock craze took the financial world by storm and has given opportunities for new research ventures. We recently chatted with Shi to learn more about his time at Sprott and this unique pandemic born phenomenon.

What attracted you to a career in higher education?

From a young age I found that I liked connecting two different things and exploring the relation between them. Later on, I would make a prediction based on such relations and saw whether I was right. I would be very excited when my predictions were right, although I wasn’t right all the time. Those situations pushed me to do further investigation. The whole process of overcoming intellectual challenges was difficult, but it was also attractive.

Being a university professor is the ideal job for people like me.  Everyday is enjoyable because you can work on your area of interest, and be surprised by new insights about the financial markets.

My dream is to advance academic knowledge, share my findings, and resolve doubts. Being a professor gives me lots of opportunities to share what I have found and learned with my students.

What current research are you working on?

My current research project revolves around retail investors and meme stocks. Retail investors are non-professional investors who invest their own money for their own benefit. Meme stocks are a group of stocks whose prices soar dramatically within a short time driven by their going viral on social media. Examples that people may be familiar with are GameStop and AMC entertainment.

My research was motivated by the recent performance of meme stocks during the pandemic. Most people first heard of meme stocks when retail investors began using Reddit – a discussion website – to spread the word and help boost the stock price of video game retailer GameStop. These investors can put their small trades together and make a huge impact on the market.

Despite the eye-catching performance and popularity in the financial press, little research has been done on the evolution of meme stocks. My goal is to examine how these stocks progress and their implications for the market and policymakers.

Why do you think meme stocks have grown in popularity?

Currently, there are a number of online brokerages such as Wealthsimple that make it easy for a retail investor to do as many trades as they like without incurring any fees. Compare that to when I was a student and I had to spend $10 to make one trade at TD Bank! Due to this, the power of retail investors is growing. And moreover, the impact of social media has been profound. It not only can be used as a way for companies to distribute information, but for retail investors to come together and make a significant impact on the market. In the future, I believe retail investors will become increasingly more important to the market thanks to the rapid growth of new technology, social media, and financial literacy.

More specifically in regards to my research, I want to know why retail investors pick these meme stocks and why did the meme stock phenomenon only start happening during the pandemic. My research will examine whether meme stocks belong to the category of lottery-like stocks because their stock prices are quite low. Lottery-like stocks are those with a price lower than $5. The key feature is that they behave like a lottery – you have the potential to earn a lot of money but 99% of the time you lose your money.  I want to know what additional characteristics, if any, make the meme stocks different from traditional lottery-like stocks.

What impact are you hoping your research will have in this area?

Meme stocks are mainly held by retail investors but these investors have much less knowledge about these investments. I want the findings from my research to be used to show less experienced investors the differences of investing in meme stocks and lottery-like stocks so that they may have a better sense of the risk.

It’s easy to be misled by fake news and social media so my hope is to help them make better decisions and invest wisely. Also, while there is a great benefit in using online brokers in regards to free trading, this may also increase the number of losses as the more you trade, the more possibility there are for mistakes. In the future, I hope that the investigation of the evolution of the meme stock phenomenon will help regulators initiate policies to protect investors and markets from significant movements.

What have been your favourite courses to teach so far? 

Currently I’m teaching Business Finance I (BUSI 2504) and Business Finance II (BUSI 2505). I enjoy teaching Business Finance as it’s a core course for undergraduate students at Sprott so I’m able to teach students from concentrations other than Finance. The students in my classes are very engaging and I was touched by their eagerness to learn more even though for some of the students, their main interest isn’t Finance. I’m happy that I’m able to show them my passion for Finance and it may help to inspire some students to also pursue academic research in the future.

What is your favourite part about being a professor?

I enjoy the variety in my job. I’m able to experience new and different things everyday. This profession allows me the freedom to work on my own and build my own schedule. And, I get to conduct research on the areas of Finance that I find the most interesting. Everyday I face different challenges and I feel a great sense of achievement when I overcome those challenges.

Besides research, I also enjoy teaching and being able to discuss the latest financial news with students in the classroom. I like to engage with my students and hear their opinions on current issues which is always quite interesting.

Outside of research/teaching, what do you like to do for fun?

Jogging is a great way for me to relax and take care of my health, both physically and mentally. I find it’s a good stress reliever and helps me forget about the day and unwind. I also really enjoy watching movies. It’s a fun way to escape into a different life for a few hours!