Spam that contains fraudulent stock information has been proven to influence the financial markets, German researchers have found.
So-called "pump-and-dump" scams, where spammers send out false stock information to encourage people to buy shares, were found to both increase the traded volume and artificially boost the share price, said researchers from the Technische Universitat Dresden this week.
In a typical case, share prices increase by around 500 percent, the researchers claimed.
Three groups of people are involved in the trading. The spammers themselves benefit by quickly selling pre-bought shares, once 'naive traders' have pushed up the share price by buying on the advice of the spam. The third group, dubbed "smart" traders, recognise that a scam is being attempted and "jump on the bandwagon" before also quickly disposing of shares, according to researcher Rainer Böhme.
"Stocks increase in value relative to the short term trend," said Böhme, speaking at the Workshop on the Economics of Information Security in Cambridge. "Pump and dump seems to work. People apparently make investment decisions based on incredible sources such as email spam," Böhme added.
The researchers used mathematical (multivariate regression) models to analyse a series of statistics. They gathered the figures by comparing Richardson’s Stock Spam Effectiveness Monitor archive with daily price quotes for the affected stocks, downloaded from Yahoo Finance.
Böhme and fellow researcher Thorsten Holz found that spammers almost exclusively trade in penny stocks, and said spammers presumably chose them because "the market impact of individual transactions is particularly high for securities with low liquidity". They found that share price was boosted by an average of 500 percent by the scams, and that there was no sign that the "trick" was losing its effectiveness.
Information-security experts from antivirus company Sophos said they had also seen evidence that stock prices rise significantly as a result of scams, and said a pump-and-dump campaign happened this week.
On Monday, spammers were encouraging users to buy stock in a cosmetics company called Southern Cosmetics, subsequently inflating its stock price, Sophos claimed.
The emails, which consisted of an embedded graphic in an attempt to avoid detection by anti-spam filters, told recipients that savvy investors would be wise to buy stock in the company because of business deals it was making with cosmetics firm Naomi LLC.
On Thursday, Southern Cosmetics warned investors to ignore the spam email, which it insisted it was not responsible for.
During the spam campaign, an examination of Southern Cosmetics' share price showed that there was a marked increase in trading in the stock. The share price rose to a high of 6.6 US cents from its pre-spam-campaign low of less than one US cent per share.
"The volume of trading on dormant stock increased dramatically," said Graham Cluley, senior technology consultant for Sophos.
"Pump and dump is a major component of the spam industry, and accounts for 15 percent of the spam we see," said Cluley. "I'm sure spammers will become more professional, and could start to include links to genuine company news," Cluley added.