On the Effects of Stock Spam E-Mails

Abstract

A rising number of unsolicited e-mails recommends buying certain stocks, pretending that the sender has private information that will boost these stocks' prices when it becomes publicly available. We first describe the common characteristics of stocks pushed by such e-mails. Then, we investigate the effect of stock spam e-mails on returns, volatility, intraday spread, and volume. We find a significant impact of spam mails on all of these variables. As a second contribution, we characterize features of stocks that are particularly easy to manipulate, and we investigate dependencies between these features.JEL classification: D82, G14, G24

The Twilight Zone: OTC Regulatory Regimes and Market Quality

“…A P&D scheme is a fraudulent form of market manipulation that involves the manipulator taking a long position in a stock before artificially increasing demand through an unsolicited campaign (e.g., via email, phone or fax). Prior research shows that P&D campaigns often lead to temporary price increases and subsequent corrections or crashes (e.g., Frieder and Zittrain, 2008;Hanke and Hauser, 2008). Thus, if our proxy (measured over the current and the two subsequent months) captures (future) crash risk, we expect it to increase significantly for stocks that are subject to P&D schemes.…”

“…Pump and Dump is a dummy variable equal to one for months in which firms are subject to market manipulation by the P&D schemes, and zero otherwise. We identify P&D schemes from four data sources: (1) the database compiled by Frieder and Zittrain (2008); for details, see www.cyber.law.harvard.edu/stockspam; (2) the Stock Spam Effectiveness Monitor that is used by Hanke and Hauser (2008); for details, see www.crummy.com/features/StockSpam; (3) www.spamnation.info; this website is now offline, we use a copy from February 2012; (4) the Qwoter's Spam Report; for details, see www.qwoter.com/spam. In Panel A, the Pump and Dump indicator equals one for 1,077 firm-months with a P&D scheme according to at least one data source.…”

Market microstructure of the Pink Sheets

“…Similarly, the magnitude of spreads, though generally quite large, is consistent with standard microstructure models. The apparent order in the marketplace stands in contrast to the ''pump and dump" strategy, which has been shown in Hanke and Hauser (2008) and Frieder and Zittrain (2007) to generate excessive trading and substantial price spikes in targeted stocks. In this section, we examine periods of extreme trading volume in Pink Sheets stocks to examine the informational efficiency of the market.…”

“…Hanke and Hauser (2008), for example, find that stocks touted in email spam feature cumulative trading volume in an 11-day window bracketing the spam date that exceeds the expected quantity by an average of 4 days' worth of trades. The targeted stocks rise on average 8% on the event date -but this increase is almost fully reversed over the next five trading days.…”

Research Note—The Cost Impact of Spam Filters: Measuring the Effect of Information System Technologies in Organizations

“…E-mail providers must handle billions of "abusive mails" (MessageLabs 2010); individuals must constantly deal with spam; and organizations complain about the burden placed on employees who must make an effort to deal with spam, making investments in technical infrastructure necessary. In summary, spam affects individuals, organizations and economies on a global scale (Hanke and Hauser 2008). In response, technical, market, and legal actions have been undertaken to reduce the costs of spam (Zhang 2005, Joseph and Thevaranjan 2008)-however, success has been limited so far.…”