Does Pump and Dump Spam Work?

Unfortunately, the short answer is yes.  A recent study conducted by Jonathan Zittrain, an Oxford University professor and Laura Frieder, a Purdue University assistant professor, found that heavy volumes of pump and dump spam significantly increase the trading activity and short term prices of the llegially touted stocks. Most pump and dump scams use stocks on Pink Sheets listings, which are stocks of companies that do not have to file with the Securities and Exchange Commission. The probability of a heavy trading day for stocks that were actively touted via spam compared to those that weren’t jumped from 4% to 70%.  The study concludes that spammers typically see a return of 5.79% over a matter of a few days. On the other hand the people who read the spam and buy the touted stock typically lose 5.5.% over the course of two to three days.


To me, the most incredible aspect of the study is that it confirms people actually act on the spam “tips” that show up in their inboxes. In large numbers, no less. That’s mindblowing! Until end-users stop clicking on links in spam mails, stop buying pump and dump stock and secure their bot infected PCs nothing will change for the better.


For any readers who do not know, Pump and Dump works something like this- Spammers buy large amounts of penny stocks with relatively low liquidity. They then send massive amounts of spam touting the stocks they hold as “must buys” or something akin. Once the spam reciepeints start buying the stock and pushing the price up (and, they do), then spammers unload their stokcs at a profit. This floods the market with a high supply of a stock for which there is no natural demand. The marks who buy the stock are now left holding the bag and lose money when they go to sell.


To see a specimin of Pump and Dump spam, go here


 


Digg! Add to Technorati Favorites  Save This Page


 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s