Abstract

http://ssrn.com/abstract=920553
 
 

References (25)



 
 

Citations (14)



 


 



Spam Works: Evidence from Stock Touts and Corresponding Market Activity


Laura Frieder


Purdue University - Krannert School of Management

Jonathan Zittrain


Harvard Law School and Kennedy School; Harvard School of Engineering and Applied Sciences; Berkman Center for Internet & Society

March 14, 2007

Berkman Center Research Publication No. 2006-11
Harvard Public Law Working Paper No. 135
Oxford Legal Studies Research Paper No. 43/2006

Abstract:     
We assess the impact of spam that touts stocks upon the trading activity of those stocks and sketch how profitable such spamming might be for spammers and how harmful it is to those who heed advice in stock-touting e-mails. We find convincing evidence that stock prices are being manipulated through spam. We suggest that the effectiveness of spammed stock touting calls into question prevailing models of securities regulation that rely principally on the proper labeling of information and disclosure of conflicts of interest as means of protecting consumers, and we propose several regulatory and industry interventions.

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. The evidence accords with a hypothesis that spammers "buy low and spam high," purchasing penny stocks with comparatively low liquidity, then touting them - perhaps immediately after an independently occurring upward tick in price, or after having caused the uptick themselves by engaging in preparatory purchasing - in order to increase or maintain trading activity and price enough to unload their positions at a profit. We find that prolific spamming greatly affects the trading volume of a targeted stock, drumming up buyers to prevent the spammer's initial selling from depressing the stock's price. Subsequent selling by the spammer (or others) while this buying pressure subsides results in negative returns following touting. 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%. For those touted stocks with above-average levels of touting, a spammer who buys on the day before unleashing touts and sells on the day his or her touting is the heaviest, on average, will earn 4.29% before transaction costs. The underlying data and interactive charts showing price and volume changes are also made available.

Number of Pages in PDF File: 44

Keywords: spam, stock, tout, markets, e-mail, Internet, cyberlaw, SEC, unsolicited, commercial, manipulation, timing, consumer protection, pink sheets, efficiency

JEL Classification: C80, C81, D18, D52, D8, G1, G12, G14, G18, G28, L1

working papers series





Download This Paper

Date posted: July 27, 2006  

Suggested Citation

Frieder, Laura and Zittrain, Jonathan, Spam Works: Evidence from Stock Touts and Corresponding Market Activity (March 14, 2007). Berkman Center Research Publication No. 2006-11; Harvard Public Law Working Paper No. 135; Oxford Legal Studies Research Paper No. 43/2006. Available at SSRN: http://ssrn.com/abstract=920553 or http://dx.doi.org/10.2139/ssrn.920553

Contact Information

Laura Frieder
Purdue University - Krannert School of Management ( email )
1310 Krannert Building
West Lafayette, IN 47907-1310
United States
Jonathan Zittrain (Contact Author)
Harvard Law School and Kennedy School ( email )
Cambridge, MA 02138
United States
Harvard School of Engineering and Applied Sciences
1875 Cambridge Street
Cambridge, MA 02138
United States
Berkman Center for Internet & Society
Harvard Law School
23 Everett, 2nd Floor
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 52,351
Downloads: 4,888
Download Rank: 758
References:  25
Citations:  14

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.390 seconds