Investment Disputes and Abnormal Volatility of Stocks

23 Pages Posted: 10 Jul 2020

See all articles by Jozef Baruník

Jozef Baruník

Charles University in Prague - Department of Economics; Institute of Information Theory and Automation, Prague

Zdenek Drabek

World Trade Organization (WTO); Institute of Economics and Statistics; CERGE-EI

Matěj Nevrla

Academy of Sciences of the Czech Republic - Department of Econometrics

Date Written: June 18, 2020

Abstract

Dramatic growth of investment disputes between foreign investors and host states rises serious questions about the impact of those disputes on investors. This paper is the first to explain increased uncertainty of investors about the outcome of arbitration, which may or may not lead to compensation for damages claimed by the investor. We find robust evidence that investment disputes lead to abnormal share fluctuations of companies involved in disputes with host countries. Importantly, while a positive outcome for an investor decreases uncertainty back to original levels, we document strong increase in the volatility of companies with negative outcome for the investor. We find that several variables including size of the award, political instability, location of arbitration, country of origin of investor or public policy considerations in host country explain large portion of the investor's uncertainty.

Suggested Citation

Barunik, Jozef and Drabek, Zdenek and Nevrla, Matěj, Investment Disputes and Abnormal Volatility of Stocks (June 18, 2020). Available at SSRN: https://ssrn.com/abstract=3630279 or http://dx.doi.org/10.2139/ssrn.3630279

Jozef Barunik (Contact Author)

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague 1, 110 00
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/staff/barunik

Institute of Information Theory and Automation, Prague ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

HOME PAGE: http://staff.utia.cas.cz/barunik/home.htm

Zdenek Drabek

World Trade Organization (WTO) ( email )

154 Rue de Lausanne
CH-1211 Geneva 21
Switzerland
+41 22 739 52 74 (Phone)
+41 22 739 57 62 (Fax)

Institute of Economics and Statistics ( email )

Opletalova 26
Prague, 11000
Czech Republic

CERGE-EI ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

Matěj Nevrla

Academy of Sciences of the Czech Republic - Department of Econometrics ( email )

Czech Republic

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