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

By Philip Barrett, Thomas J. Boulton, Terry D. Nixon

November 10, 2023

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Format: Chicago

Philip Barrett, Thomas J. Boulton, and Terry D. Nixon The Economic Consequences of Social Unrest: Evidence from Initial Public Offerings, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Financial markets, Initial public offering, Stock markets

Keywords: Caribbean, Evidence from initial public offerings, Global, Initial public offering, Initial public offerings, Investor sentiment, IPO price, IPO underpricing, Quality institution, Social unrest, Stock markets, Underpricing

Publication Details

Pages:

52
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/232
Stock No:

WPIEA2023232
ISBN:

9798400258978
ISSN:

1018-5941

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