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Stock Market Reactions to Conflict Diamond Trading Restrictions and Controversies


  • William Seitz


In this paper, I explore the reactions of financial market participants to news relating to the Kimberley Process Certification Scheme (KPCS), a body that regulates aspects of global diamond production and trade. I use an event study approach with data on the returns for shares of leading global mining and jewelry retail companies over the period from 1999 to 2011. I show that the most influential dates related to the KPCS for diamond mining companies were associated with regulatory actions in the early 2000s taken by the United Nations and the United States. These events were associated with lower returns for diamond mining companies. After 2004, jewelry companies experienced abnormal returns coinciding with KPCS-related events, while mining firms appear rarely affected by events during this time. The majority of returns for jewelry companies were negative for events which called into question the ability of the KPCS to ensure conflict-free diamond production and trade. Expanded legal diamond production in some cases coincided with positive returns for jewelry retail companies over the time period I consider. These results are consistent with the expectation that jewelry companies, which often market directly to consumers, are more sensitive to public perception concerning the KPCS and its credibility. The results are inconsistent with the point of view that the creation of the KPCS was seen by financial market participants as “good news” overall for diamond mining companies. The results also suggest that once trade restrictions were in place, mining companies were less affected by controversies surrounding the credibility of the KPCS.

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  • William Seitz, 2012. "Stock Market Reactions to Conflict Diamond Trading Restrictions and Controversies," CSAE Working Paper Series 2012-22, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2012-22

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    References listed on IDEAS

    1. Thorvaldur Gylfason & Gylfi Zoega, 2002. "Inequality and Economic Growth: Do Natural Resources Matter?," CESifo Working Paper Series 712, CESifo Group Munich.
    2. Massimo Guidolin & Eliana La Ferrara, 2007. "Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?," American Economic Review, American Economic Association, vol. 97(5), pages 1978-1993, December.
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    5. van den Berg, Gerard J. & Lundborg, Petter & Vikström, Johan, 2012. "The economics of grief," Working Paper Series 2012:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    6. Kaempfer, William H. & Lehman, James A. & Lowenberg, Anton D., 1987. "Divestment, investment sanctions, and disinvestment: an evaluation of anti-apartheid policy instruments," International Organization, Cambridge University Press, vol. 41(03), pages 457-473, June.
    7. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 1990. "Economic Sanctions Reconsidered: 2nd Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 82, January.
    8. Grant, J. Andrew, 2005. "Diamonds, Foreign Aid, and the Uncertain Prospects for Post-Conflict Reconstruction in Sierra Leone," WIDER Working Paper Series 049, World Institute for Development Economic Research (UNU-WIDER).
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    More about this item


    Diamonds; Natural Resources; Trade Regulation; Event Study;

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade

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