The Economic Consequences of Social Unrest: Evidence from Initial Public Offerings
IMF Working Papers, November 10, 2023
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- The Economic Consequences of Social Unrest: Evidence from Initial Public Offerings
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Bibliographic details
- Authors: Philip Barrett, Thomas J. Boulton, Terry D. Nixon
- Published: November 10, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400258978.001
Research question and approach
- Prior research attributes negative stock market performance following episodes of social unrest to elevated uncertainty.
- The paper investigates whether social unrest primarily increases uncertainty or separately decreases investor sentiment by studying initial public offering (IPO) underpricing.
- IPO underpricing is used because it responds differently to changes to uncertainty and investor sentiment.
Key findings
- IPO first-day returns are lower during times of greater social unrest.
- Limits to arbitrage intensify the negative relation between social unrest and underpricing.
- Strong institutional frameworks mitigate the impact of social unrest on underpricing, suggesting that quality institutions weaken the link between investor sentiment and returns.
Interpretation and implications
- The evidence is consistent with the notion that social unrest dampens investor sentiment rather than operating solely through increased uncertainty.
- Institutional quality plays a mitigating role, implying that policy efforts to strengthen institutions can weaken the transmission from investor sentiment shocks driven by social unrest to IPO returns.
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- Working Paper