Lately I've been getting tons of spam touting various stocks. It turns out that the stock manipulators have discovered that spam works, at least when you're dealing with an inefficient market:
Based on a large sample of touted stocks listed on the Pink Sheets quotation system, we find that stocks experience a significantly positive return on days when they are heavily touted via spam, and on the day preceding such touting. Volume of trading also responds positively and significantly to heavy touting. Indeed, on a day when no tout has been detected in our database, the likelihood of a touted stock being the most actively traded stock that day is only 6%. On the other hand, on days when there is touting activity, the probability of a touted stock being the single most actively traded stock is 81%. 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. Selling by the spammer then results in negative returns following touting. Investors who respond to touting are losing, on average, 5.25% in the two day period following touting. For the quintile of stocks in our sample that are touted most heavily, this 2-day loss approaches 8%. These estimates are conservative, as they do not account for transaction costs.
Two thoughts. First, the strategy shouldn't work in an efficient market - or, at least, shouldn't work as well. To be sure, even efficient markets can be deceived (hence, the fraud on the market theory), but it's a lot harder (hence, the criticisms of the fraud on the market theory). Second, although it might be theoretically possible to devise a trading strategy that allowed you to profit by piggy backing on the manipulators, you'd have to get into and out of the right touted stocks really fast. Any potential profit likely would get chewed up by transaction costs, which is true of virtually all market timing strategies. So the best advise might be to just delete the stock advise spam the same way you delete every other spam.
