Diamonds Are Forever, Wars Are Not. Is Conßict Bad for Private Firms? *

This paper studies the relationship between civil war and private investment in a poor, resource abundant country using microeconomic data for Angola. We focus on diamond mining Þrms and conduct an event study on the sudden end of the conßict, marked by the death of the rebel movement leader in 2002. We Þnd that the stock market perceived this event as “bad news” rather than “good news” for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This Þnding is corroborated by other events and by the adoption of alternative methodologies. We also use nonparametric techniques with daily data on the intensity of conßict, and Þnd that moderate levels of violence increased the abnormal returns of the “Angolan” portfolio. We interpret our results in the light of the widespread rent seeking in the Angolan mineral industry.