Great Looking Cyber Rumors May Be Too Good to Be True

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Great Looking Cyber Rumors May Be Too Good to Be True

"Because of the severe drought, the revenues of water pump maker 'S' are expected to rise."

A 33-year-old day trader identified only as Mr. Kim received this rumor recently over the Internet as an instant message, and began buying the stock immediately. The share price of "S" jumped 12 percent in just three hours.

Pleased with himself, Mr. Kim decided to call the company. But the investor relations manager from the firm told him the rumor was false, and the company does not even make water pumps. Abashed, Mr. Kim sold all the stock.

That case is just one example of how the Internet has transformed the production and circulation of stock market rumors. Nowadays, rumors take just seconds to move market prices.

Before the Internet age, dealers and brokers used to plant rumors in "information conferences" by visiting many corporations. Today, securities firms post rumors on the Web for about five minutes and then remove them, fearful of prosecutors, who have stepped up monitoring of the rumors.

But those rumors quickly spread throughout the investor community, carried by the instant message services. Day traders, upon reading the rumors, often buy the recommended stocks immediately and proliferate the rumors through more instant messages in attempts to jolt the stocks.

Instant message services became widely popular on the Internet scene last year, and have already attracted 13 million users in Korea. "Old ways to feed rumors, such as documents or telephones, have already lost their effectiveness," said an investment consultant at Fides Securities.



by Ha Jae-sik

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