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Why do people risk exposure to Ponzi schemes? Econometric evidence from Jamaica

The global financial crisis has led to the unearthing of numerous Ponzi schemes around the world. This paper examines the factors determining individuals' extent of exposure to Ponzi schemes. The theoretical literature on investor gullibility and risk tolerance was used to develop an economic model to explain such exposure. The model was empirically tested by analyzing the results of a survey of 402 investors in Jamaican Ponzi schemes. A profile of persons most likely to be highly exposed to Ponzi schemes was created, along with a delineation of the most critical factors accounting for the popularity of such schemes.

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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 21 (2011)
Issue (Month): 3 (July)
Pages: 328-346

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Handle: RePEc:eee:intfin:v:21:y:2011:i:3:p:328-346
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

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  1. BAUWENS, Luc & SUCARRAT, Genaro, 2006. "General to specific modelling of exchange rate volatility: a forecast evaluation," CORE Discussion Papers 2006021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Kevin D. Hoover & Stephen J. Perez, 2004. "Truth and Robustness in Cross-country Growth Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(5), pages 765-798, December.
  3. David F. Hendry & Hans-Martin Krolzig, 2004. "We Ran One Regression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(5), pages 799-810, December.
  4. Julia Campos & Neil R. Ericsson & David F. Hendry, 2005. "General-to-specific modeling: an overview and selected bibliography," International Finance Discussion Papers 838, Board of Governors of the Federal Reserve System (U.S.).
  5. Ana Carvajal & Hunter K. Monroe & Catherine A. Pattillo & Brian Wynter, 2009. "Ponzi Schemes in the Caribbean," IMF Working Papers 09/95, International Monetary Fund.
  6. Chris Jarvis, 2000. "The Rise and Fall of the Pyramid Schemes in Albania," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 1.
  7. Jacqueline M. Drew & Michael E. Drew, 2010. "The Identification of Ponzi Schemes: Can a Picture Tell a Thousand Frauds?," Discussion Papers in Finance finance:201008, Griffith University, Department of Accounting, Finance and Economics.
  8. Schoemaker, Paul J H, 1993. " Determinants of Risk-Taking: Behavioral and Economic Views," Journal of Risk and Uncertainty, Springer, vol. 6(1), pages 49-73, January.
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