A look at the 10 most-purchased stocks by retail traders during the market mania last month is missing one key stock: GameStop.
AMC Entertainment and Plug Power, two names caught up in the trading frenzy along with GameStop, were popular buys among retail investors, JPMorgan found, yet the brick-and-mortar video game retailer that seemingly put Wall Street on its heels is notably absent from the list.
The prevailing narrative was that a band of Reddit-inspired small traders rose up against Wall Street by buying GameStop en masse, forcing a short squeeze by professional hedge fund managers, who were forced to cover their negative bets or risk catastrophic losses.
But several signs are pointing to institutional investors as big drivers of the wild price action on the way up.
"Although retail buying was portrayed as the main driver of the extreme price rally experienced by some stocks, the actual picture may be much more nuanced," JPMorgan global quantitative and derivatives strategy analyst Peng Cheng told clients in a note. JPMorgan's quant team uses public data from exchanges and applies a proprietary methodology to identify which flows are from retail traders. GameStop was number 15 on the firm's retail buying list for January.
The rookie investor "vigilantes" grabbed the most attention by being all over social media, posting screenshots of their positions and crucifying Robinhood and other brokers when the firms were forced to limit trading in the high-flying names. The membership of Reddit group WallStreetBets has rocketed to 8.5 million subscribers.
However, it's possible the noise from this crowd caused most to overlook Wall Street co-opting this trade to make a fast buck as well, data shows.
"Maybe it's not as much of just the little guy versus the big guy," said JMP Securities analyst Devin Ryan. "I think that it's reasonable to say that institutional investors were also very active in those stocks last week because there are institutional investors that participate in names that have elevated volume. I think most likely that was also expressed in some of the options activity last week as well."
Retail investors were actually net sellers of GameStop from Tuesday through Thursday last week, according to data from Citadel Securities.
"What was going on in the stocks forced the hedge funds to trade to cover, or they might have been playing, too, to win," said Piper Sandler analyst Richard Repetto. "There always could be the hedge fund that was totally uninvolved, wasn't short, but saw what was going and said this might be a way that I can profit just by going long."
New York-based hedge fund Senvest Management reportedly made $700 million off of the GameStop mania, The Wall Street Journal reported Wednesday.
Another proxy for retail trading, Trade Reporting Facility volumes, showed that retail investing decreased significantly after Tuesday of last week. The volumes are basically all the trades that aren't executed on the exchanges. So, what goes into that TRF is normally the vast majority of all the retail volume.
Retail trading volumes were near record highs at 50% on Tuesday of last week, but dropped off more than 5% the next day, signaling a decrease in individual investing in what was the thick of the Reddit mania.
"If this was just retail doing everything, that percentage would have stayed the same, if not gone up," said Repetto. Hedges might have been "riding the wave and trying to benefit, too," he added.
Trading restrictions by brokers like Robinhood and Interactive Brokers on certain securities starting Thursday of last week could have contributed to the drop in trading that day and last Friday.
A David and Goliath narrative transpired last week between the social media crazed Reddit traders and the major hedge funds shorting stocks like GameStop.
However, some investors, including short-seller Carson Block, theorized that the battle royale was Wall Street vs. Wall Street.
Last week, UBS' Art Cashin, who has seen short-squeeze battles play out before, suspected something more was at play than just rookie investors.
"I … have some suspicions that it is not a democratization. I'm not sure that everything you're reading is coming from the little guy, the public," Cashin told CNBC last week. "I think there may be some big professionals in there that want to turn the crowd into a mob and get them to attack the hedge funds by buying this."
University of Chicago law professor Todd Henderson, whose research specializes in corporations, securities regulation, and law and economics, thinks hedge funds were the driving force of GameStop's meteoritic rise.
"I know people are hung up on Reddit and the little guy sort of teaming up on the big guys. ... I think this was just big guys teaming up on big guys," Henderson said during a webinar on Tuesday.
Henderson theorizes that hedge funds purchase a bundle of shares that would have otherwise been loaned out freely to short sellers and bought them back from the short-sellers. This created fewer shares for short sellers to borrow in the market, and that squeezed the number of possible shares available to be loaned, making it harder for short sellers to bet against the stock. The desperate short-sellers needed to find new shares to borrow but supply got constricted.
"All of that price inflation was likely driven by vindictive hedge funds trying to squeeze out a hedge fund that was short GameStop," said Henderson.
While the GameStop bubble is popping this week, with the shares down more than 80%, regulators in Washington are not forgetting about last week's drama.
Both houses of Congress are planning to hold hearings regarding the GameStop mania and newly appointed Treasury Secretary Janet Yellen said she will be meeting with the heads of the Securities and Exchange Commission, the Federal Reserve Board, the New York Fed and the Commodities Futures Trading Commission to discuss "whether recent activities are consistent with investor protection and fair and efficient markets."
"Regulators want to get to the bottom of what exactly occurred last week," said Ryan. "One response will be for regulators to look into exactly how this occurred and whether there were bad actors with bad intentions mixed in with people that were just looking for information and were taking part in a trade they were enthusiastic about."
SEC regulators are reportedly combing through Reddit posts to identify if there were any bad actors trying to manipulate the market last week, according to Bloomberg News. The regulatory agency is also investigating the possibility of bots playing a role in the mob.
"We're kind of in this unprecedented time where the power of social media has really taken on a new meaning," said Ryan. "I think that gives people a new voice and overall information is powerful, but with that there needs to be some understanding about how that information is being used."
Tony Casey, also of the University of Chicago, contends that hedge funds piggybacked on Reddit traders to ride the GameStop wave. He said the "knee jerk" regulatory action could have risked causing an adverse effect. With emotions running high, Casey said the hearings in Washington could be "dangerous" if legislators rush to judgment about regulating retail investing, brokers or hedge funds.
"People have been calling for the regulation of retail trade for a long time. Normally you do it when traders obviously lost. ... You can't have rules that you're going to let retail investors make bad decisions when they lose the bet but we're going to regulate them when big funds lose the bet," Casey said during the same webinar. "That would be a political disaster."
Regardless of where regulators decide to point the finger, Repetto expects hedge funds will look more carefully at the stocks they are shorting, avoiding names with a very high percentage of the float tied up in short interest.
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.
—CNBC's Michael Bloom, Nate Rattner and Crystal Mercedes contributed to this report.