The Economic Consequences of Social Unrest: Evidence from Initial Public Offerings

52 Pages Posted: 6 Dec 2023

See all articles by Philip Barrett

Philip Barrett

International Monetary Fund (IMF)

Thomas J. Boulton

Miami University

Terry Nixon

Miami University of Ohio

Multiple version iconThere are 2 versions of this paper

Abstract

Prior research attributes negative stock market performance following episodes of social unrest to elevated uncertainty. However, social unrest does not solely increase uncertainty, but separately acts to decrease investor sentiment. To determine which effect dominates, we study initial public offering (IPO) underpricing, which responds differently to changes to uncertainty and investor sentiment. Consistent with the notion that social unrest dampens investor sentiment, we find robust evidence that IPO first-day returns are lower during times of greater social unrest. Limits to arbitrage intensify the negative relation between social unrest and underpricing. Notably, strong institutional frameworks mitigate the impact of social unrest on underpricing, suggesting that quality institutions weaken the link between investor sentiment and returns.

Keywords: Initial public offerings, investor sentiment, social unrest, underpricing

JEL Classification: G15, G24, G38

Suggested Citation

Barrett, Philip and Boulton, Thomas J. and Nixon, Terry David, The Economic Consequences of Social Unrest: Evidence from Initial Public Offerings. IMF Working Paper No. 2023/232, Available at SSRN: https://ssrn.com/abstract=4655684 or http://dx.doi.org/10.5089/9798400259616.001

Philip Barrett (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Thomas J. Boulton

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Terry David Nixon

Miami University of Ohio ( email )

Oxford, OH 45056
United States

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