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Stock spammers gain while followers lose
Published: 2007-01-22

The fraudsters behind stock-touting e-mail campaigns typically make nearly 6 percent returns on the pumped-up stock if they follow a simple strategy, while traders that buy the touted stock lose more than 5 percent in two days, stated a research paper published over the weekend.

The paper--written by Laura Frieder, an assistant professor at Purdue University, and Jonathan Zittrain, s professor at Oxford University--analyzed 304 touted stocks using historical price data from Pink Sheets, an information provider for over-the-counter securities. A spammer that buys a stock, pumps up the price with a significant e-mail campaign, and sells at the peak of the campaign, saw an average gain of 5.79 percent, according to the researchers.

"The problem is significant, as the increasing volume of stock-touting spam and apparent number of campaigns suggests," the researchers stated. "Spammers can make a lot of money over time, in amounts that are small enough to escape notice but large enough to be worth accumulating."

In previous papers, other researchers have also found that spammers tend to profit. Last year, two researchers studied 93 stocks touted by unsolicited e-mail and found that the price increased by 1.7 percent on average on the day the spam was first received. On the following day, the stock price dipped 0.9 percent on average and then rose by that same amount on the second day.

While small, such consistent returns for spammers has made stock spam, especially image stock spam, increasingly popular. Stock-touting spam accounts for about a third of all spam, according to e-mail security firms. The large volume of spam sent in e-mail campaign has likely contributed to a general jump in junk e-mail over the last year.

The paper found that the disclosure of conflicts of interest, increasingly common in stock spam to give it the veneer of legality, does not work adequately to dissuade would-be buyers.

Posted by: Robert Lemos
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