Review of Stock Markets’ Reaction to New Events: Evidence from Brexit

Abstract

Several studies have evolved to deal with the determinants of stock market volatility. However, there exists a gap in literature with regards to the interrelation among the broad categories of factors that trigger stock market reaction namely company fundaments, technical factors and market sentiments. This paper provides a holistic and comprehensive theoretical review of drivers of stock markets' reaction as well as designs an interrelated conceptual framework of the factors that influence investors' decision making to fill the gap in literature. Brexit is presented as a case study to illustrate how investors and stock markets are affected by new events or information. This study will reveal some of the global staggering effects of Brexit at the end of trading on June 24, 2016 in areas such as currencies, stock markets, banks, commodities, bonds, automakers and homebuilders as well as hedge fund. Barely 24 hours after the results of Brexit were declared; global stock markets lost about $2 trillion in value. The British pound plunged to almost $1.33, its lowest level in over 30 years against the US dollar and gold proved to be one of the few safe havens for investors on that day. In order for investors to insulate themselves against loses from Black Swans events, the conclusion of this study recommends some protective mechanisms for investors which include avoidance of overexposure and stockpiling of cash.

Analysis of Stock Market Reaction to Largescale Social Restrictions Policy Announcement

“…Investor menerima return harapan dengan bergantung pada informasi internal dan eksternal yang perusahaan. Oleh karena itu, investor menerima kelebihan atau kekurangan dari selisih return harapan dan return ekspektasi atau disebut sebagai return tak normal yang menjadi gambaran adanya reaksi pasar terhadap beberapa informasi baru (Quaye et al, 2016).…”

Stock Market Reactions to Brexit: Case of Selected CEE and SEE Stock Markets

“…The second group also examines the Brexit vote effects on return series or volatilities; however, authors here use different approaches (such as regression analysis quantile regression, frequency domain analysis, panel data analysis, etc.). Quaye et al (2016) extensively analyzed the effects of the Brexit vote on stock markets, banks, bonds, and other markets over the word by going through newspaper articles and doing a comparative analysis of the values of the indices and prices of different financial assets. Authors report the following: after the Brexit vote, the FTSE 250 dropped by 7.2% the next day, FTSE 100 3.2%, Dow 3.4%, Nasdaq 4.12%, Hang Seng 2.9%, Topix by 7.3%, Euro Stoxx 600 by 7%, ASX 3.2%, DAX by 7%, CAC 8%, and FTMIB 12%.…”

Stock Markets’ Reactions to the Announcement of the Hosts. An Event Study in the Analysis of Large Sporting Events in the Years 1976–2032

“…Importance should also be attached to the news leading to possible government actions, which may have a substantial impact on the whole economy due to expected considerable amounts of money to be involved. Such “news,” which is frequently related to announcements of different events, might be of various sources, including but not limited to economy and finance (Papasyriopoulos et al, 2007; Law et al, 2020; Strauss & Smith, 2019), politics (Quaye et al, 2016) and marketing (Becker-Olsen, 2003; Clark et al, 2009; Sorescu et al, 2017). In addition, recently in the literature, a number of studies can be found which refer to the sports area, including the examination of the impact of the announcements of various large sporting events on hosts’ stock markets (Asteriou et al, 2013; Danylchuk et al 2016; Floros, 2010; Hood, 2012; Refai & Eissa, 2017).…”