Friday, June 22, 2012

Worthless Stock Inefficiency in Action

One of my themes is something I call the "worthless stock inefficiency". I've done seven posts about this: [1,2,3,4,5,6, 7]. I've discovered that the buyers of these worthless stocks organize and recruit themselves - to pump the stocks up - on Twitter. For example:

Augusta Friends (@augustafriends)
5/29/12 9:38 AM
$GMXR - My target $1.29 after it…

Augusta Friends (@augustafriends)
5/29/12 7:57 AM
$AONE new HOD coming!!!…
If you follow the Twitter streams for the stocks that have cheap bonds, you can see a lot of this activity: AONE, GMXR, and KV-A, for example.

Remember this important conclusion from the paper about statistical properties of bankrupt equities:
during the 100 days preceding bankruptcy, a stock's volatility and volume both tend to increase more than usual, and so the two become more strongly correlated than normal. So even without knowing the underlying causes of the increased volatility and volume, the strong correlation provides a statistical indication of approaching bankruptcy.
It seems as though no one else has caught on to the worthless stock inefficiency.

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