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Detecting Illegal Arms Trade

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  • Stefano DellaVigna
  • Eliana La Ferrara

Abstract

We propose a method to detect illegal arms trade based on investor knowledge. We focus on countries under arms embargo and identify events that suddenly increase or decrease conflict intensity. If a weapon-making company is trading illegally, an event that increases the demand for arms may increase stock prices. We find positive event returns for companies headquartered in countries with high corruption and low transparency in arms trade. We also suggest a method to detect potential embargo violations based on chains of reactions by individual stocks. The presumed violations positively correlate with the number of UN investigations and Internet stories. (JEL D74, F13, G14, K42, L64)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 2 (2010)
Issue (Month): 4 (November)
Pages: 26-57

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Handle: RePEc:aea:aejpol:v:2:y:2010:i:4:p:26-57

Note: DOI: 10.1257/pol.2.4.26
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  1. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
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  5. Brian A. Jacob & Steven D. Levitt, 2003. "Rotten Apples: An Investigation Of The Prevalence And Predictors Of Teacher Cheating," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 843-877, August.
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  9. Justin Marion & Erich Muehlegger, 2008. "Measuring Illegal Activity and the Effects of Regulatory Innovation: Tax Evasion and the Dyeing of Untaxed Diesel," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 633-666, 08.
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  11. Maloney, Michael T. & Mulherin, J. Harold, 2003. "The complexity of price discovery in an efficient market: the stock market reaction to the Challenger crash," Journal of Corporate Finance, Elsevier, vol. 9(4), pages 453-479, September.
  12. Jos� G. Montalvo & Marta Reynal-Querol, 2005. "Ethnic Polarization, Potential Conflict, and Civil Wars," American Economic Review, American Economic Association, vol. 95(3), pages 796-816, June.
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  15. Mark Duggan & Steven D. Levitt, 2000. "Winning Isn't Everything: Corruption in Sumo Wrestling," NBER Working Papers 7798, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. William Seitz, 2012. "Stock Market Reactions to Conflict Diamond Trading Restrictions and Controversies," Economics Series Working Papers WPS/2012-22, University of Oxford, Department of Economics.
  2. Janus, Thorsten, 2012. "Natural resource extraction and civil conflict," Journal of Development Economics, Elsevier, vol. 97(1), pages 24-31.
  3. Laurent Bouton & Paola Conconi & Francisco Pino & Maurizio Zanardi, 2014. "Guns and Votes," NBER Working Papers 20253, National Bureau of Economic Research, Inc.
    • Laurent Bouton & Paola Conconi & Francisco Pino & Maurizio Zanardi, 2013. "Guns and votes," Working Papers 43819146, Lancaster University Management School, Economics Department.
    • Bouton, Laurent & Conconi, Paola & Pino, Francisco & Zanardi, Maurizio, 2013. "Guns and Votes," CEPR Discussion Papers 9726, C.E.P.R. Discussion Papers.
    • Laurent Bouton & Paola Conconi & Francisco Pino & Maurizio Zanardi, 2013. "Guns and Votes," Working Papers ECARES ECARES 2013-39, ULB -- Universite Libre de Bruxelles.
  4. Tandon, Sharad, 2012. "Economic reform, voting, and local political intervention: Evidence from India," Journal of Development Economics, Elsevier, vol. 97(2), pages 221-231.
  5. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Corruption in Professional Sumo: An Update on Duggan and Levitt's Study," Working Papers 0824, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jun 2009.
  6. Brian Knight, 2013. "State Gun Policy and Cross-State Externalities: Evidence from Crime Gun Tracing," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 200-229, November.
  7. William Seitz, 2013. "Trade Restrictions and Conflict Commodities: Market Reactions to Regulations on Conflict Minerals from the Democratic Republic of the Congo," OxCarre Working Papers 102, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  8. Ferrier, Peyton Michael, 2009. "The Economics of Agricultural and Wildlife Smuggling," Economic Research Report 55951, United States Department of Agriculture, Economic Research Service.
  9. Baskaran, Thushyanthan, 2014. "The political economy of special needs transfers: Evidence from Bavarian municipalities, 1993-2011," Center for European, Governance and Economic Development Research Discussion Papers 211, University of Goettingen, Department of Economics.
  10. Marion, Justin & Muehlegger, Erich, 2007. "Measuring Illegal Activity and the Effects of Regulatory Innovation: A Study of Diesel Fuel Tax Evasion," Working Paper Series rwp07-026, Harvard University, John F. Kennedy School of Government.
  11. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Corruption in Professional Sumo: An Update on the Study of Duggan and Levitt," Working Papers 0085, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jun 2009.
  12. François-Xavier Delaloye & Michel Habib & Alexandre Ziegler, 2012. "Swiss banking secrecy: the stock market evidence," Financial Markets and Portfolio Management, Springer, vol. 26(1), pages 143-176, March.

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