Penny Stocks Trading- documenting the scams

Penny stocks can be significantly manipulated for easy profits just by spam emails. This has been documented in a study based on 2004-2005 data on US Stocks entitled Spam Works: Evidence from Stock Touts and Corresponding Market Activity. It will be left for the readers to estimated what levels of scam/manipulation can be achieved by synchronizing the internet, print and air media.

A simulation stock purchase from author’s webpage which depicts their scam process:

“Overall, our analysis shows that spam works. Among its millions of recipients are not only those who read it, but who also act upon it, suggesting a value to spamming that will create a powerful counterbalance to regulatory and technical efforts to contain it.”

• On average, stocks heavily touted via spam emails show a significantly positive return on the day of and the day before touting.
• Spam touting also produces a significant increase in trading volume. On days when there is touting (no touting), a touted stock is the most actively traded stock 81% (6%) of the time.
• Investors who respond positively to touting, lose on average, 5.25% in the two day period following touting (not including trading costs).
• The more spam there is touting a stock, the greater the effect on price and volume. For the most heavily spammed quintile of stocks, the 2-day loss for buyers approaches 8% (not including trading costs).
• The average spam touting effect grows in magnitude from 2004 to 2005, suggesting that spammers are improving their reach and/or focus.