Fraud and Financial Markets: The 1997 Collapse of the Junior Mining Stocks

The Vancouver Composite Index fell by over 25% in less than six weeks during spring 1997 as the junior mining sector collapsed. We argue that this market collapse was triggered by the failure of Bre-X Minerals when that company’s Indonesian claims, previously believed to contain the world’s largest gold deposit, were shown to be pure fraud. Our event study, based on market returns for the Vancouver Composite Index and for a portfolio of 59 gold stocks, shows the effects of the Bre-X scandal to be both sizeable and significant. There is also some evidence that smaller exploration companies were hardest hit.Bre-X; event study; fraud; gold; mining

International Effects of the Andersen Accounting and Auditing Scandals: Some Evidence from the US, UK and Australian Stock Markets

In this paper, we use event study methodology to examine the effect of two highly publicized accounting failures, at Enron and WorldCom both audited by Arthur Andersen, on the total stock returns of some companies in the UK also audited by Arthur Andersen. The results vary substantially between countries. We find no evidence of a significant impact in the UK or US. There is some evidence of negative abnormal returns at the time of the Enron scandal in Australia. However, this reaction was very short-lived and the negative abnormal returns on the stocks of Andersen-audited companies had been fully recovered within a week. Our results suggest that sharing an auditor with a firm that has issued corrections to accounts which have previously received an unqualified audit opinion does not significantly affect market perceptions of firms’ value, which suggests that the choice of auditor has little, if any, impact on market perceptions of the reliability of published financial information. Key words: Accounting scandals, Enron, WorldCom, Event study, International Stock Markets.

Diamonds are forever, wars are not. Is conflict bad for private firms?

This paper studies the relationship between civil war and the value of firms in a poor, resource abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as “bad news” rather than “good news” for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We interpret our findings in the light of conflict-generated entry barriers, government bargaining power and transparency in the licensing process.Microeconomics ; Mineral industries

Cashtag piggybacking: uncovering spam and bot activity in stock microblogs on Twitter

Microblogs are increasingly exploited for predicting prices and traded volumes of stocks in financial markets. However, it has been demonstrated that much of the content shared in microblogging platforms is created and publicized by bots and spammers. Yet, the presence (or lack thereof) and the impact of fake stock microblogs has never systematically been investigated before. Here, we study 9M tweets related to stocks of the 5 main financial markets in the US. By comparing tweets with financial data from Google Finance, we highlight important characteristics of Twitter stock microblogs. More importantly, we uncover a malicious practice - referred to as cashtag piggybacking - perpetrated by coordinated groups of bots and likely aimed at promoting low-value stocks by exploiting the popularity of high-value ones. Among the findings of our study is that as much as 71% of the authors of suspicious financial tweets are classified as bots by a state-of-the-art spambot detection algorithm. Furthermore, 37% of them were suspended by Twitter a few months after our investigation. Our results call for the adoption of spam and bot detection techniques in all studies and applications that exploit user-generated content for predicting the stock market