When (evil) hackers hammer the Stock prices

 

 

Can evil hackers/cyber criminals/competitors affect the stock prices of a corporation? We are not talking about sophisticated hacks aimed at accessing confidential information or conducting massive denial of attacks on web interests of a business. Instead, let’s consider a case where a hacker ‘poisons’ the information available about the (financial) health of a corporation. You may ask: “How does that happen and how would it impact the trading of securities like stocks? “

 

Consider the following hypothetical case then:

 

Phase 1: Evil hackers/crime mobs/competitors break into news websites and add (false) damaging information (in the form of a fake article) about the financial well being of a corporation X. The title of such an article could look like “Senior Management of Corporation X is selling company shares in anticipation of impending bankruptcy”. 

 

Phase 2: On the internet, the news travels at the speed of light (or even faster!) .This fake article may be quickly indexed by search engines and then would available to a wider population. Also, to further increase traffic to the fake article and to in turn increase the page rankings on Google et al , a hacker could use botnet herds to visit this article. Once this (fake and grim) news is seen by enough people , Bloggers and market analysts alike wouldn’t hesitate to share their (pessimistic) opinions and predictions about the future of the corporation X. 

Phrase 3: Stock markets incorporate any available information at blazing speed. As stock traders, MBAs et al would know, the efficient market hypothesis or the concept of “Market Efficiency” suggests that any new information is readily absorbed and reflected in the stock prices. To a certain extent, this is intuitive as well. So now a mass paranoia may lead to massive selling of the stocks and sending the stock prices of corporation X crashing down. Now in times of credit crunch, economic depression, soaring oil prices, global warming and what not, bankruptcy is always an option..

 

Now off course, some readers may feel that this is FUD and some others may feel that the above situation has been expressed in a very simplistic manner as if it impacting the stock prices and forcing a corporation towards bankruptcy was the easiest thing to do on the planet. The readers in the latter category might be right though. However, those who think it’s a hypothetical case, might wish to read this piece of news .‘Apparently’ a 6 yr old write-up about bankruptcy fears related to United Airlines resurfaced on a news website in 2008, as a current affairs piece and brought down the stock prices of the airlines. This impact on stock price of United Airlines is believed to be a result of stock scamming techniques such as the one described above in this post. Agreed that only time will tell if this indeed was the case for American Airlines but there shouldn’t be any doubt about the probability of such threats materializing and the fact that we could see more of them in the near future.