Stock Spam

Bill Sjostrom —  1 May 2006

Stock spam refers to spam emails that tout typically thinly traded stocks.  There’s a new paper up on SSRN entitled “The Effect of Stock Spam on Financial Markets� that analyzes whether stock spam impacts trading volume or market valuation of the touted stocks.  Here’s the abstract:

Spam messages are ubiquitous and extensive interdisciplinary research has tried to come up with effective countermeasures. However, little is known about the response to unsolicited e-mail, partly because spammers do not disclose sales figures. This paper correlates incoming spam messages that promote the investment in particular equity securities with financial market data. We use multivariate regression models to measure the impact of stock spam on traded volume and conduct an event study to find effects on market valuation. In both cases we have found evidence for significant reactions to spam campaigns in the short run. Theoretical and practical implications of the findings are addressed.

The article describes the stock spammer business model as speculating “on positive price developments of thinly traded stocks after they have been hyped in thousands of messages sent to possible investors,â€? and concludes that “the business model . . . actually works.â€?  I guess you can call a pump-and-dump scheme a business model, but it is not one I would recommend adopting.  And I’m sure the SEC would agree.  Nonetheless, it’s an interesting paper.