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

Author

Listed:
  • William O. Brown, Jr.

    (Claremont McKenna College)

  • Richard C.K. Burdekin

    (Claremont McKenna College)

Abstract

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.

Suggested Citation

  • William O. Brown, Jr. & Richard C.K. Burdekin, "undated". "Fraud and Financial Markets: The 1997 Collapse of the Junior Mining Stocks," Claremont Colleges Working Papers 1999-28, Claremont Colleges.
  • Handle: RePEc:clm:clmeco:1999-28
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    File URL: http://www.claremontmckenna.edu/rdschool/papers/1999-28.pdf
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    References listed on IDEAS

    as
    1. Fowler, David J. & Rorke, C. Harvey, 1983. "Risk measurement when shares are subject to infrequent trading : Comment," Journal of Financial Economics, Elsevier, vol. 12(2), pages 279-283, August.
    2. Peter Tufano, 1998. "The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 53(3), pages 1015-1052, June.
    3. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
    4. Blose, Laurence E. & Shieh, Joseph C. P., 1995. "The impact of gold price on the value of gold mining stock," Review of Financial Economics, Elsevier, vol. 4(2), pages 125-139.
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    Cited by:

    1. Gordon, Narelle & Watts, Edward & Wu, Qiongbing, 2014. "Information attributes, information asymmetry and industry sector returns," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 156-175.

    More about this item

    Keywords

    Bre-X; event study; fraud; gold; mining;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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