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Essay / Closing Price Manipulation - 2124
The main objective of this article is to evaluate the impact of microcap stock promotion campaigns on stock volume and price. This study uses a sample of 81 stock promotion emails sent by promotion companies to potential investors in 2009. Each promotion is matched to the corresponding touted stock, and the daily volumes and prices of 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 inventory volumes and prices on the day and days following a promotion. However, in the long run, volumes return to normal (pre-promotion volume) and prices decrease to levels below their pre-promotion prices. The evidence is presented in the section titled “Findings”. Detailed explanations of how the study is conducted as well as additional information relating to the data can be found in the “Data Description/Method” section. This document also details the microcap stock promotion industry and explains the economics behind the business. Included is information on who hires the promo companies and why, the operations and profitability of the promo companies, the frequency of stock bragging, the methods of manipulation involved, and the risk of prosecution by the Securities and Exchange Commission ( DRY). ).BackgroundPromotion CompaniesEach year, hundreds of publicly traded companies, directly or indirectly through large shareholders, hire stock promotion companies (or investment newsletters, as many call themselves). to “promote” or “boast” their actions. The job of promotion companies is to attract naive and unsuspecting investors to buy the promoted stocks. This allows the middle of the paper to not work "as expected". They act as if their stock sellers are coming from the goodness of their hearts. Other schemes employed by promoters (and promoters' hirers) include manipulation of closing prices, fictitious trades, and chat room spamming. The illegal practice of closing price manipulation (also known as "painting the tape") is a way for promoters to push a stock's closing price to an artificially higher level. Promoters may use this tactic to make a certain stock "green" for the day (closing at a higher price than the previous day's closing price), when in reality it should have looked negative for the day (closing at a price lower than the closing price of the previous day), thus making the security more attractive to investors. It is important that promoters present a certain image of a stock to investors. This often means manipulating prices in a way that appeals to the investor's psyche..