Closing Price Manipulation

2131 WordsJul 8, 20189 Pages
The primary goal of this paper is to assess the impact of microcap stock promotion campaigns on stock volume and price. This study uses a sample of 81 stock touting emails sent by promotion companies to potential investors in 2009. Each promotion is matched with its corresponding touted stock, and the daily volumes and prices for each stock are analyzed for a period following the promotion. Using this empirical data, this research shows a significant (and in many cases drastic) increase in both stock volumes and prices on the day of and days following a promotion. In the long term however, volumes returns to normal (pre-promotion volume), and prices decrease to levels lower than their pre-promotion prices. The evidence is presented under…show more content…
Unfortunately, it is unclear what fraction of promoter’s email lists comes from voluntary sign ups, and whether or not it is these investors that account for the majority of the stock volume associated with the promotions. Nonetheless, promotion companies consistently attract buyers into the stocks they promote—if not they go out of business. When it comes to the process in promotion, nearly all stock promotion companies operate in a largely similar manner, with only minor differences to distinguish themselves. Each promoter is usually hired to service contracts extending from a week to a couple of months, but typically only send out a handful of emails per promoted company. Most promoters prefer to send their touts after the market closes encouraging recipients to invest in a certain stock (usually one per email) the following trading day. A few other promoters’ strategy is to send their promotions right near or at the opening of the market, perhaps to capture the excitement of the opening, or to allow investors less time to react before others buy into the stock first. Some also like to send emails before a stock tout to increase the hype of their next promotion. Such emails will often proclaim something along the lines of “get ready for tomorrow’s pick, it might be my best pick ever!” or every once in a while “if this next stock doesn’t double I will
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