Household Responses to Phantom Riches

@article{knupfer2023household,
  author  = {Knüpfer, Samuli and Rantala, Ville and Vihriälä, Erkki and Vokata, Petra},
  title   = {Household Responses to Phantom Riches},
  journal = {The Review of Financial Studies},
  year    = {forthcoming},
  doi     = {10.2139/ssrn.3850928},
  url     = {https://doi.org/10.2139/ssrn.3850928},
}

Knüpfer, S., Rantala, V., Vihriälä, E., & Vokata, P. (forthcoming). Household responses to phantom riches. The Review of Financial Studies. https://doi.org/10.2139/ssrn.3850928

Abstract

with Samuli Knüpfer, Ville Rantala, and Petra Vokata

Accepted at The Review of Financial Studies

We study the consequences of investment fraud victimization using unique administrative data on Ponzi scheme investors. A matched control event-study design shows that the victims experience a six percent annual labor income loss. Income first declines when an investor joins the scheme, consistent with distorted beliefs lowering labor supply. The scheme’s collapse triggers a further decrease, which we attribute to financial stress. Investors also face higher indebtedness and tilt their portfolios away from delegated investments. The income loss persists in the long run, equals twice the direct investment loss, and substantially adds to the social cost of fraud.