Gambling in Penny Stocks: The Case of Stock Spam E-Mails
Bill X. Hu, Thomas H. McInish, Li Zeng · International journal of cyber criminology · 2010
Stocks are a top area for spammers, largely due to the quick returns they can earn from touting penny stocks. However, little is known about whether stock spam e-mail recipients’ trading behavior is linked to the contents of spam e-mails. We analyzed the content of stock spam e-mails promoting stocks to individual investors to determine the factors that influenced traders’ reactions. Using over 40,000 spam messages touting 785 firms in 580 spam campaigns (SC—a period of spamming activity with no more than 5 consecutive days without a spam e-mail.) from November 2004 to August 2007, we investigated 5 attributes that could have potentially affected whether investors bought the touted firm’s stock, namely, target price, message length, e-mail source, incentives, and touting international business. We found that e-mails providing a short-term price target generated abnormal returns and trading volume. If spammers purchased the stock prior to the start of an SC and sold at the closing price on the day with heaviest touting, the abnormal return was 5.85 percent for SCs with a price target. Further, e-mails touting U.S. stocks had abnormal returns while those touting non-U.S. firms did not. We did not find significant differences in market reactions for message length, e-mail source, or incentives.