some weekend reading on how market manipulation occurs: THE...

some weekend reading on how market manipulation occurs:

THE IMPACT OF MANIPULATION IN INTERNET STOCK MESSAGE BOARDS

Abstract

Internet message boards are often used to spread information in order to manipulate financial markets. Although this hypothesis is supported by many cases reported in the literature and in the media, the real impact of manipulation in online forums on financial markets remains an open question. This paper is on the effect of manipulation in internet stock message boards on financial markets by employing a unique corpus of moderated messages to investigate market manipulation. Internet message board administrators use the process of moderation to restrict market manipulation. We find that manual supervision of stock message boards by moderators does not effectively protect Internet users against manipulation. By focusing on messages that have been moderated as manipulative due to ramping, we show ramping is positively related to market returns, volatility and volume. Stocks with higher turnover, lower price level, lower market capitalization and higher volatility are more common targets of ramping.

6. Conclusions and Directions for Future Work

To the best of our knowledge, this work provides the first quantitative analysis of market manipulation of Internet stock message boards. Employing a unique body of moderated messages, we are able to identify messages that have been moderated as manipulative due to ramping and examined its relationship with market response. We find that manual moderation of internet stock message boards does not effectively protect users against manipulation. This is consistent with our expectation that rampers in forums are difficult to identify even for moderators. The possible reasons could be due to the fact that ramping can be a long progressive process, by which a ramper inconspicuously disseminates his ideas but attempts to hide the motivation to ramp. Our experiment also shows that ramping is positively and significantly related to market returns, volatility and volume. In addition, our results demonstrate that stocks with higher turnover, lower price level, lower market capitalization and higher volatility are more common targets of ramping.

Our proxy for ramping is not perfect. Future works may include the development of techniques to detect well-concealed smart manipulators amongst posts not yet reviewed by moderators. Computational linguistics techniques could be employed to detect ramping and to refine our proxy for ramping. As discussed in section 5, the number of posts moderated due to ramping is only a lower bound to the actual number of ramping posts. To identify ramping posts that have not been labeled by moderators, we need to examine the content of all unmoderated posts. We plan to build a text classifier to automatically identify posts with inappropriate content. Applying this classifier to unmoderated posts will enable us to discover posts that should have been moderated due to ramping and subsequently to refine our proxy for ramping. The following two sample unmoderated posts shows that an improvement can be made to detect the poster‟s intention to ramp.

 “I heard a rumor that the plant is still being repaired and may be operating again later today. Does anyone know how to contact the fellow from Atmos that is mentioned in this article?”

 “I‟m focusing on oil stocks now, not affected by all this, and also I heard a rumor even General Motors now admit our oil has run out on what we can produce in one day and now in decline, which is good news to the oil stocks.”


in summary, know the risks when trading penny stocks and reading the day trade forum...
best stick to asx300 stocks, like WHC

you can read the whole thing here:

http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1178&context=ijbf