Scammed and Scarred: Effects of Investment Fraud on its Victims

Fisher College of Business Working Paper No. 2021-03-008

Charles A. Dice Center Working Paper No. 2021-08

59 Pages Posted: 24 May 2021

See all articles by Samuli Knüpfer

Samuli Knüpfer

BI Norwegian Business School; Research Institute of Industrial Economics (IFN)

Ville Rantala

University of Miami - Department of Finance

Petra Vokata

Ohio State University (OSU) - Department of Finance

Date Written: May 21, 2021

Abstract

We study the effects of investment-fraud victimization using information on thousands of Ponzi scheme participants combined with register data on the Finnish population. A difference-in-differences analysis reveals the victims earn 5% less income after the scheme collapses. This persistent loss arises from a combination of unemployment, absenteeism, mobility, and labor force exit, and its long-run value exceeds the direct investment loss. Victims also experience higher indebtedness and more divorces and shy away from investments delegated to asset managers. These scars from fraud victimization add to the social cost of fraud and are relevant for optimal regulatory design.

Keywords: Financial fraud, Ponzi scheme, consumer financial protection, investment mistake

JEL Classification: G28, D14, D18

Suggested Citation

Knüpfer, Samuli and Rantala, Ville and Vokata, Petra, Scammed and Scarred: Effects of Investment Fraud on its Victims (May 21, 2021). Fisher College of Business Working Paper No. 2021-03-008, Charles A. Dice Center Working Paper No. 2021-08, Available at SSRN: https://ssrn.com/abstract=3850928 or http://dx.doi.org/10.2139/ssrn.3850928

Samuli Knüpfer

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

HOME PAGE: http://www.samuliknupfer.com

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Ville Rantala

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Petra Vokata (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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