Internet and e-mail policy and practice
including Notes on Internet E-mail


2006
Months
Jul

Click the comments link on any story to see comments or add your own.


Subscribe to this blog


RSS feed


Home :: Email


20 Jul 2006

Does pump and dump spam work? Email

I've been reading some of the very interesting papers from the Fifth Workshop on the Economics of Information Security, (WEIS 2006), held last month in Cambridge (UK). Rainer Boehme and Thorsten Holz's paper The Effect of Stock Spam on Financial Markets is the first analysis I have seen of pump and dump spam, and comes to the dismaying conclusion that it works.

Pump and dump is a financial scam that predates the Internet by decades if not centuries. The promoter buys up some stock in a small thinly traded company, then touts it to get the suckers to buy it, which drives up the price so he sells. Spam is an ideal medium for the touts, and since historical stock prices are easily available, this is one of the few kinds of spam where there is data that makes it possible to see what the effect was.

There have been pump and dump sites for quite a while that show that only a fool buys the touted stocks, but this analysis looks at the volume of touted stocks and the short term price changes, to see if the intended price jump happens. The statistical analysis to extract useful info from the noisy data is rather complicated. They use the notion of abnormal returns to try to isolate the price changes that aren't explained by the normal behavior of stocks. They found a mean abnormal return of +1.7% the day of the spam, then -0.9% the next day, then +0.9%, -1.1%, and -0.9% the next three days. So if you already own the stock before the spam is sent and sell it within a day or two, you will make a small but consistently positive amount of money.

They have some other observations on naive recipients who believe the spam and smart recipients who know what's going on but try to get in on the price jump, and other possible uses of fake financial advice such as trying to trigger a run on a bank by spreading rumors of its insolvency. It's worth wading through the arithmetic.


posted at: 19:37 :: permanent link to this entry :: 1 comments
posted at: 19:37 :: permanent link to this entry :: 1 comments

comments...        (Jump to the end to add your own comment)


Thanks for picking up this story. There's a very strong paper on this topic posted at SSRN at by Jonathan Zittrain and Laura Frieder, entitled "Spam Works: Evidence from Stock Touts and Corresponding Market Activity."

(by John Palfrey 03 Aug 2006 23:01)


Add your comment...

Note: all comments require an email address to send a confirmation to verify that it was posted by a person and not a spambot. The comment won't be visible until you click the link in the confirmation. Unless you check the box below, which almost nobody does, your email won't be displayed, and I won't use it for other purposes.

 
Name:
Email: you@wherever (required, for confirmation)
Title: (optional)
Comments:
Show my Email address
Save my Name and Email for next time

Topics


My other sites

Who is this guy?

Airline ticket info

Taughannock Networks

Other blogs

CAUCE
It turns out you don’t need a license to hunt for spam.
32 days ago

A keen grasp of the obvious
Italian Apple Cake
590 days ago

Related sites

Coalition Against Unsolicited Commercial E-mail

Network Abuse Clearinghouse



© 2005-2020 John R. Levine.
CAN SPAM address harvesting notice: the operator of this website will not give, sell, or otherwise transfer addresses maintained by this website to any other party for the purposes of initiating, or enabling others to initiate, electronic mail messages.