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

52 Pages Posted: 21 Feb 2024 Last revised: 12 Apr 2024

See all articles by Thomas J. Boulton

Thomas J. Boulton

Miami University

Philip Barrett

International Monetary Fund (IMF)

Terry Nixon

Miami University of Ohio

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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

Suggested Citation

Boulton, Thomas J. and Barrett, Philip and Nixon, Terry David, The Economic Consequences of Social Unrest: Evidence from Initial Public Offerings. Available at SSRN: https://ssrn.com/abstract=4733667 or http://dx.doi.org/10.2139/ssrn.4733667

Thomas J. Boulton (Contact Author)

Miami University ( email )

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

International Monetary Fund (IMF) ( email )

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

Terry David Nixon

Miami University of Ohio ( email )

Oxford, OH 45056
United States

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