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

Philip Barrett, Thomas Boulton and Terry Nixon

No 2023/232, IMF Working Papers from International Monetary Fund

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; evidence from initial public offerings; quality institution; IPO underpricing; IPO price; Initial public offering; Stock markets; Global; Caribbean (search for similar items in EconPapers)
Pages: 52
Date: 2023-11-10
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