Publication Type

Journal Article

Publication Date

7-2011

Abstract

SLCapex is a stock exchange owned and operated by “residents” of the online virtual world Second Life. Despite its almost complete lack of regulation and legal protections against fraud or insider trading, issuers were able to raise approximately US$145,000 from investors, which grew to US$900,000 in market value before plummeting, resulting in overall investor returns of −71%. Investors in large issuances lost more than investors in small issuances, and small investors experienced more severe losses relative to large investors when more money was at stake, indicating that the market did a poor job of protecting investors from issuers and of providing a level playing field for investors. Theories from financial economics can explain the markets' poor performance in the absence of regulatory and legal institutions, but they cannot easily explain why issuers were able to raise capital in such a setting.

Discipline

Accounting | Portfolio and Security Analysis

Research Areas

Financial Performance Analysis

Publication

Southern Economic Journal

Volume

78

Issue

1

First Page

6

Last Page

29

ISSN

0038-4038

Identifier

10.4284/0038-4038-78.1.6

Publisher

Southern Economic Association

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