One of the disadvantages of having so many email accounts is the number of spam you get. Recently, I’ve been noticing an increase in stock spam making it through my spam filters. I’ve been wondering how effective the spam is and whether or not one could make money shorting these stocks.
Apparently, I’m not the only one. The local paper carried a NYT article titled “Many people fall for stock spam.†In the article, the author describes the work of Frieder and Zittrain. Frieder and Zittrain found that pink sheet stocks that were heavily touted in spam were significantly more likely to be traded than non-touted stocks. Purchasing these stocks would lead a 5.25% loss within two days. For the most heavily touted stocks, the average loss was almost 8% in two days.
To get a sense of what these look like, I read through the 700+ spam messages collected in my spam folder over the past week. I feel like I’ve been dumpster diving. However, amid the emails claiming that I can enlarge body parts, get cheap watches and drugs, improve my sex life and buy human growth hormone, I found a few dozen messages touting 10 different stocks.
Looking at the stocks online shows that, sure enough, in the day or two around the time I got the spam, there was a substantial increase in the trading volume and in several cases, there was noticable increase in the share price. Now if I really wanted to test this, I would start selling these stocks short any time I received stock spam. Figure maybe a thousand dollars per stock. A 5% drop on a shorted stock in two days is nothing to ignore 🙂