I've Been Receiving A Lot of Investment Spam
Published 9/13/07 (Modified 3/8/11)
I have been noticing a strange trend in the e-mail spam I've been receiving over the last year or so. There has been a steady stream of investment and stock related spam, each promoting a particular company's stock. Usually these are penny stocks of obscure companies in the lower rung of the stock market.
Do People Actually Fall For Spam Investment Advice?
The thing that makes me wonder is whether investment spam has a perceivable effect on market activity and spam targeted stock prices. My first guess would be that there shouldn't be an effect because who would be so gullible and naive to trade on information received in the form of spam? But sadly, as a testament to the fallibility of humankind, and the validity of the phrase "there's a sucker born every minute," spam DOES have a perceptible effect on targeted stock prices.
According to some research, investment spam does have a significant impact on certain parts of the stock market. One research indicates that:
Based on a large sample of touted stocks listed on the Pink Sheets quotation system and a large sample of spam emails touting stocks, we find that stocks experience a significantly positive return on days prior to heavy touting via spam. Volume of trading responds positively and significantly to heavy touting. For a stock that is touted at some point during our sample period, the probability of it being the most actively traded stock in our sample jumps from 4% on a day when there is no touting activity to 70% on a day when there is touting activity. Returns in the days following touting are significantly negative.
Yes, Spammers Do Make Money, But Beware!
However, don't think you can hurry and trade on the investment spam "advice" to make a quick profit. By the time you have received the spam, the surge in volume the hype has generated will have likely run its course, prepping the stock for a massive post-hype fall. The article indicates that:
Before brokerage fees, the average investor who buys a stock on the day it is most heavily touted and sells it 2 days after the touting ends will lose close to 5.5%.
So, don't trade on investment spam! It's just plain dumb.