IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v96y2018icp18-33.html
   My bibliography  Save this article

Ponzi schemes and the financial sector: DMG and DRFE in Colombia

Author

Listed:
  • Hofstetter, Marc
  • Mejía, Daniel
  • Rosas, José Nicolás
  • Urrutia, Miguel

Abstract

We use a novel dataset to estimate, for the first time in the literature, the effects of Ponzi schemes on the formal financial sector. DMG and DRFE, two Ponzi schemes that were shut down by the Colombian government in November 2008, had over half a million customers, who invested funds corresponding to 1.2% of Colombia's annual GDP. We find that pyramid costumers’ obtained more loans from the financial sector and their credit standings were better than those in the respective control groups while the schemes were operating. Afterwards, their loan stocks started to decrease and their ratings with the banking sector deteriorated. Prior to November 2008, deposits in the financial sector fell more in the municipalities more affected by the schemes.

Suggested Citation

  • Hofstetter, Marc & Mejía, Daniel & Rosas, José Nicolás & Urrutia, Miguel, 2018. "Ponzi schemes and the financial sector: DMG and DRFE in Colombia," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 18-33.
    • Handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:18-33
    DOI: 10.1016/j.jbankfin.2018.08.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426618301791
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2018.08.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hofstetter, Marc & Mejía, Daniel & Rosas, José Nicolás & Urrutia, Miguel, 2018. "Ponzi schemes and the financial sector: DMG and DRFE in Colombia," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 18-33.
    2. Cortés, Darwin & Santamaría, Julieth & Vargas, Juan F., 2016. "Economic shocks and crime: Evidence from the crash of Ponzi schemes," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 263-275.
    3. Charles P. Kindleberger & Robert Z. Aliber, 2005. "Manias, Panics and Crashes," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-0-230-62804-5, September.
    4. Chris Jarvis, 2000. "The Rise and Fall of the Pyramid Schemes in Albania," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 1-1.
    5. Bhattacharya, Utpal, 2003. "The optimal design of Ponzi schemes in finite economies," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 2-24, January.
    6. Tennant, David, 2011. "Why do people risk exposure to Ponzi schemes? Econometric evidence from Jamaica," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(3), pages 328-346, July.
    7. Cox-Edwards, Alejandra & Rodríguez-Oreggia, Eduardo, 2009. "Remittances and Labor Force Participation in Mexico: An Analysis Using Propensity Score Matching," World Development, Elsevier, vol. 37(5), pages 1004-1014, May.
    8. Lewis, Mervyn K., 2012. "New dogs, old tricks. Why do Ponzi schemes succeed?," Accounting forum, Elsevier, vol. 36(4), pages 294-309.
    9. Artzrouni, Marc, 2009. "The mathematics of Ponzi schemes," Mathematical Social Sciences, Elsevier, vol. 58(2), pages 190-201, September.
    10. Mervyn K. Lewis, 2012. "New dogs, old tricks. Why do Ponzi schemes succeed?," Accounting Forum, Taylor & Francis Journals, vol. 36(4), pages 294-309, December.
    11. Ana Carvajal & Mr. Hunter K Monroe & Ms. Catherine A Pattillo & Brian Wynter, 2009. "Ponzi Schemes in the Caribbean," IMF Working Papers 2009/095, International Monetary Fund.
    12. Wang-Sheng Lee, 2013. "Propensity score matching and variations on the balancing test," Empirical Economics, Springer, vol. 44(1), pages 47-80, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lars Hornuf & Paul P. Momtaz & Rachel J. Nam & Ye Yuan, 2023. "Cybercrime on the Ethereum Blockchain," CESifo Working Paper Series 10598, CESifo.
    2. Seth Garz & Xavier Gine & Dean Karlan & Rafe Mazer & Caitlin Sanford & Jonathan Zinman, 2021. "Consumer Protection for Financial Inclusion in Low- and Middle-Income Countries: Bridging Regulator and Academic Perspectives," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 219-246, November.
    3. Hofstetter, Marc & Mejía, Daniel & Rosas, José Nicolás & Urrutia, Miguel, 2018. "Ponzi schemes and the financial sector: DMG and DRFE in Colombia," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 18-33.
    4. Shuyu Zhang & Dunli Zhang & Jianming Zheng & Walter Aerts & Dandan Xu, 2023. "Plus Token and investor searching behaviour – A cryptocurrency Ponzi scheme," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4713-4728, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin Amoah, 2018. "Mr Ponzi with Fraud Scheme Is Knocking: Investors Who May Open," Global Business Review, International Management Institute, vol. 19(5), pages 1115-1128, October.
    2. Shuyu Zhang & Dunli Zhang & Jianming Zheng & Walter Aerts & Dandan Xu, 2023. "Plus Token and investor searching behaviour – A cryptocurrency Ponzi scheme," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4713-4728, December.
    3. Mário Cunha & Hélder Valente & Paulo B. Vasconcelos, 2013. "Ponzi schemes: computer simulation," OBEGEF Working Papers 023, OBEGEF - Observatório de Economia e Gestão de Fraude;OBEGEF Working Papers on Fraud and Corruption.
    4. Simone Bertoli & Francesca Marchetta, 2014. "Migration, Remittances and Poverty in Ecuador," Journal of Development Studies, Taylor & Francis Journals, vol. 50(8), pages 1067-1089, August.
    5. Mengyin Li & Phillip H. Phan & Xian Sun, 2021. "Business Friendliness: A Double-Edged Sword," Sustainability, MDPI, vol. 13(4), pages 1-22, February.
    6. Reurink, Arjan, 2016. "Financial fraud: A literature review," MPIfG Discussion Paper 16/5, Max Planck Institute for the Study of Societies.
    7. Tennant, David, 2011. "Why do people risk exposure to Ponzi schemes? Econometric evidence from Jamaica," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(3), pages 328-346, July.
    8. Hervé Laroche & Véronique Steyer & Christelle Théron, 2019. "How Could You be so Gullible? Scams and Over-Trust in Organizations," Journal of Business Ethics, Springer, vol. 160(3), pages 641-656, December.
    9. Kim Kaivanto, 2014. "Visceral emotions, within-community communication, and (ill-judged) endorsement of financial propositions," Working Papers 69123498, Lancaster University Management School, Economics Department.
    10. Sara Cerasoli & Amilcare Porporato, 2023. "Optimal Resource Allocation for Carbon Mitigation," Sustainability, MDPI, vol. 15(13), pages 1-22, June.
    11. Amarendra Sharma, 2019. "Indira Awas Yojana and Housing Adequacy: An Evaluation using Propensity Score Matching," ASARC Working Papers 2019-05, The Australian National University, Australia South Asia Research Centre.
    12. Paulo M.M. Rodrigues & Rita Fradique Lourenço, 2015. "House prices: bubbles, exuberance or something else? Evidence from euro area countries," Working Papers w201517, Banco de Portugal, Economics and Research Department.
    13. Hertrich Markus, 2019. "A Novel Housing Price Misalignment Indicator for Germany," German Economic Review, De Gruyter, vol. 20(4), pages 759-794, December.
    14. Engelbert Stockhammer & Paul Ramskogler, 2009. "Post-Keynesian economics How to move forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 6(2), pages 227-246.
    15. Farla, Kristine, 2012. "Institutions and credit," MERIT Working Papers 2012-038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    16. Schwäbe, Carsten, 2013. "Unkonventionelle Geldpolitik: Warum die Europäische Zentralbank ihre Unabhängigkeit nicht verloren hat," CIW Discussion Papers 3/2013, University of Münster, Center for Interdisciplinary Economics (CIW).
    17. Richard Nielsen, 2013. "Whistle-Blowing Methods for Navigating Within and Helping Reform Regulatory Institutions," Journal of Business Ethics, Springer, vol. 112(3), pages 385-395, February.
    18. Julia, Knolle, 2014. "An Empirical Comparison of Interest and Growth Rates," MPRA Paper 59520, University Library of Munich, Germany.
    19. Michael C. Knaus, 2021. "A double machine learning approach to estimate the effects of musical practice on student’s skills," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 184(1), pages 282-300, January.
    20. Ulrich van Suntum, "undated". "Economic Confidence, Negative Interest Rates, and Liquidity: Towards Keynesianism 2.0," Working Papers 200108, Institute of Spatial and Housing Economics, Munster Universitary.

    More about this item

    Keywords

    Ponzi schemes; Pyramids; Colombia; Banking; Savings and loans; Loan ratings;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:18-33. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.