The Economic Effects of Brexit: Evidence from the Stock Market

Abstract

We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess investors’ expectations about the effects of leaving the European Union on the UK economy. Our results suggest that initial stock price movements were driven by fears of a cyclical downturn and by the sterling depreciation following the referendum. We also find tentative evidence that market reactions to two subsequent speeches by Theresa May (her Conservative party conference and Lancaster House speeches) were more closely correlated with potential changes to tariffs and non‐tariff barriers on UK–EU trade, indicating that investors may have updated their expectations in light of the possibility of a ‘hard Brexit’. We do not find a correlation between the share of EU immigrants in different industries and stock market returns.

The Global Impact of Brexit Uncertainty

“…4 Papers documenting a negative impact of Brexit on UK investments, employment, wages, trade, lending, and competition include Born et al (2019); Berg et al (2019); Van Reenen (2016); Sampson (2017);Breinlich et al (2018); Davies and Studnicka (2018); Dhingra et al (2017); Graziano et al (2018); Garetto et al (2019); Costa et al (2019); McGrattan and Waddle (2017); Steinberg (2019). 5 Campello et al (2018) document the investment and hiring e↵ects of Brexit on a sample of US firms exposed to the UK economy.…”

Dynamic network and own effects on abnormal returns: evidence from China’s stock market

“…A recent strand of research in economics bridges the interests in financial and international economics by considering responses of stock-market prices to shocks in the announcements of trade or investment liberalizations or de-liberalizations. Examples of such work include Thompson (1993), Breinlich (2014), Moser and Rose (2014), Alfaro et al (2017), Breinlich et al (2018), Davies and Studnicka (2018), and Egger and Zhu (2019).…”

The financial costs of political uncertainty: Evidence from the 2016 US presidential elections

“…Evidently, market participants may be wrong, and share price movements might not appropriately detect the impacts of such changes. But given the information aggregation function of equity markets, stock price reactions detect the “consensus view” of well‐informed economic actors including banks, insurance companies, and investment funds (see Breinlich, Leromain, Novy, Sampson, & Usman, ).…”