54 ATaleofTwoMarkets
The hoax was engineered by a former employee of a press service
who knew the ropes of getting releases onto the Internet and re-
ported by organizations eager to be first to get news out. Apart from
the devastation to the stoc kof Emulex, the hoax appeared respon-
sible for dragging down the stoc kprices of numerous other fiber
optic companies as well as the broader Nasdaq composite.^1
Webcasting by brokerage firms can also be a source of negative
information volatility. Supplanting the traditional news media, ana-
lysts of major brokerages increasingly post reports directly on their
own Web sites by video streaming. They opine on market conditions
and call attention to favored stocks. Most firms admit they are not
reporting news but claim instead to be giving information. The dif-
ference is often lost on investors consuming the data, who trade on
its basis without recognizing that it is furnished as a marketing de-
vice for the brokerage rather than as news vetted and constrained
by traditional journalistic ethics of independence.
But the real villains of negative information volatility are the
cobwebs of Web sites that pump out unfiltered information on the
Internet with unbridled abandon, particularly on bulletin boards and
chat rooms. The ease and often anonymous character of information
dissemination over these Internet forums eliminates an important
filter for vast channels of what only passes for news and information.
If it has always been hard to believe that the market is as omniscient
as EMT says it is, the increasing ability of anyone, anywhere—iden-
tified or anonymous—to spread lies, rumors, hunches, and other
disinformation to millions at a time makes that concept downright
fantastic.
On a typical day over thirty thousand messages flood the four
largest boards: Yahoo!, Silicon Investor, Motley Fool, and Raging
Bull. None of these board providers screen the messages for accu-
racy, and all leave them up after they are posted. All of them permit
anonymous messages, and all posters can use as many different
names as they want.
For less than it costs to buy a cappuccino, anybody can drop by a
cyber cafe ́, log on, use one of many services that facilitate anonymous
postings that are nearly impossible to trace (cutely called “anonymiz-
ers”), and say anything he or she wants to about any company (or any-
thing else, for that matter). The SEC has some investigators who reg-
ularly review sites looking for possible fraud and some companies try
to address the rumors they see flying around, but these efforts cannot
assure you that what you are reading is worth anything.