Friday, September 17, 2010

The best analogy of the day

I'm a regular reader of the Rabbit Room, a blog run by a group of Christian artists mostly around the Nashville area. They're a pretty amazing group of people - artistically talented as painters, writers, and musicians, mature, deep and thoughtful in their faith, and (importantly in terms of keeping me coming back) funny as all get out.

Recently they had a weekend get together where they had a numbr of speakers (and some kick-hiney food). One of the speakers was Walter Wanegrin, who wrote a book called The Book of The Dun Cow, a very powerful story where the protagonists are all animals fighting against Wyrm, the source of all evil in their world. It's insightful, thought provoking, and funny.

One of the bloggers expressed how inadequate he felt felt discussing literature wit Wanegrin (note: this came from the blogger - by all indications, Wanegrin is an estremely humble and engaging fellow). Anyway, here's the quote:

I felt a thousand things as he spoke, which I feel incapable of putting into adequate words. I feel like a clever monkey trying to explain to Beethoven (who is deaf and dead) the joys of flinging poo.
Every once in a while, you hear a phrase that just sticks with you. I think this one qualifies, and I've been there.

How The Financial World Views Itself

A former student of mine who works at a hedge fund just sent me this. For what it's worth, he says it's pretty accurate

My favorite is how the traders view sales. Note: the image originally came from MacroMan.

Wednesday, September 8, 2010

Spam, Spam, Spam, Spam

A couple of years back, I was on the train (coming back from a consulting gig), and, being an extrovert, I started talking with a guy sitting next to me. He was a "stock tout". In other words, he was one of those guys who sent out emails pushing one stock or another. He claimed it was a pretty profitable business.

Now I have some evidence backing him up.
Here's a pretty interesting piece on the market effects of internet stock spam spam. A couple of years ago, Well, Frieder and Zittrain did a study titled Spam Works: Evidence from Stock Touts and Corresponding Market Activity. They found that on spammers "touting" (i.e. pushing) a stock has some pretty significant effects on the touted stock's price and trading volume. Here's the abstract (emphasis mine):
We assess the impact of spam that touts stocks upon the trading activity of those stocks and sketch how profitable such spamming might be for spammers and how harmful it is to those who heed advice in stock-touting e-mails. We find convincing evidence that stock prices are being manipulated through spam. We suggest that the effectiveness of spammed stock touting calls into question prevailing models of securities regulation that rely principally on the proper labeling of information and disclosure of conflicts of interest as means of protecting consumers, and we propose several regulatory and industry interventions.

Based on a large sample of touted stocks listed on the Pink Sheets quotation system and a large sample of spam emails touting stocks, we find that stocks experience a significantly positive return on days prior to heavy touting via spam. Volume of trading responds positively and significantly to heavy touting. For a stock that is touted at some point during our sample period, the probability of it being the most actively traded stock in our sample jumps from 4% on a day when there is no touting activity to 70% on a day when there is touting activity. Returns in the days following touting are significantly negative. The evidence accords with a hypothesis that spammers "buy low and spam high," purchasing penny stocks with comparatively low liquidity, then touting them - perhaps immediately after an independently occurring upward tick in price, or after having caused the uptick themselves by engaging in preparatory purchasing - in order to increase or maintain trading activity and price enough to unload their positions at a profit. We find that prolific spamming greatly affects the trading volume of a targeted stock, drumming up buyers to prevent the spammer's initial selling from depressing the stock's price. Subsequent selling by the spammer (or others) while this buying pressure subsides results in negative returns following touting. Before brokerage fees, the average investor who buys a stock on the day it is most heavily touted and sells it 2 days after the touting ends will lose close to 5.5%. For those touted stocks with above-average levels of touting, a spammer who buys on the day before unleashing touts and sells on the day his or her touting is the heaviest, on average, will earn 4.29% before transaction costs. The underlying data and interactive charts showing price and volume changes are also made available.
If you're not convinced (or even if you are), I have a couple of names of people who are related to the former finance minister of Nigeria who need your help getting money out of the country (and are willing to share the profits with you). I'll give them to you for a small finder's fee. Just send me the routing number on your bank account and I'll take care of it electronically.

HT: The Psi-Fi Blog

Of course, with a title like that, it was inevitable

Friday, September 3, 2010

Here We Go Again

All good things (and summers) come to an end - we're starting back up at Unknown University. For the first time in four years, I get to teach the undergraduate introductory course. For many faculty, this would be a bad thing (a lot of my colleagues simply don't like teaching the core course). However, I find it to be one of m favorite classes - it's easy, and I get to be an energetit and somewhat goofy evangelist for the Finance Department.

While putting together my syllabus, I went looking for an appropriate quote or two (I usually stick a few in there, if only for my own amusement). I came across a perfect one for the Unknown Daughter. As I've mentioned before, she's extremely bright (I know, I'm biased). But she also hangs out with a great bunch of kids - she and her closest three girlfriends are all smart, creative, and nice. They now can have a group motto.

The quote (attributed to Mark Twain) is:
Knowledge is Power
Power Corrupts
Study Hard
Be Evil
Even better, you can buy a t-shirt with the motto at Cafe Press.