The Impacts of Brexit on European Equity Markets

Abstract

The aim of this paper is to give a comprehensive description of the risk dependence and interdependence between selected European stock markets and Brexit equity in the period spanning from January, 7, 2000 to February, 3, 2017 We have studied behavior of extreme quantiles using quantile regression approach. This approach is robust because it is based on the use of various measures of central tendency and dispersion statistics for a detailed analysis of the relationship between variables. We have found evidence of significant interdependence /independence between financial markets and Brexit uncertainty. The analysis of upper and lower quantiles allows us to observe that the interdependence is positive asymmetric and higher for bear markets compared to bull or normal market conditions in the period before the Brexit vote. Moreover, we have analyzed the influence of the Brexit vote on selected markets. We have found that one or two or three days after voting the dependence structure was changed mainly in normal market conditions for French and Turkish markets, while Polish and Spanish markets were not significantly influenced.

Post-Brexit Stock Market Volatility and European Central Bank Reaction Function

“…We also used a dummy variable for post-Brexit periods; interestingly enough the related coefficient for Brexit is statistically significant for all stock markets, meaning that Brexit has led to at least 15% increase in volatility of FTSE, and 12% and 14% increase in DAX and CAC, respectively. The results here are consistent with those of Belke, Dubova, & Osowski [3] and Bohdalova, & Gregus [17], and Jackson, Akhtar, & Mix [14] who found that Brexit has led to higher volatility of stock market indices in EU.…”

“…Given, the detrimental role of Brexit for the volatility of stock markets, as emphasized by several economists including Bohdalova, & Gregus [17], and Belke, Dubova, and Osowski [3] this study tried to answer two main questions: (i) what are the effects of Brexit on three main stock market indices in Europe, FTSE, DAX, and CAC, using econometric models and a dummy variable for Brexit; and (ii) how can European Central Bank (ECB) react to stock market volatility and neutralize the adverse effects of Brexit on stock market indices. To respond to this question we used Taylor and Volker [21] model with embedded variables accounting for policy deviation in the traditional Taylor model, using depreciation of British pound and volatility of foreign stock market index.…”

“…Bohdalova, & Gregus [17] use data from January 7, 2000 to February 3, 2017 to investigate the effects of Brexit on financial markets. They use German, French, Irish, Spanish, Turkish and Poland stock market indices.…”

New test of contagion with application on the Brexit referendum

“…The empirical results show that under the influence of Brexit, flight-to-quality not only commonly occurs between the stocks and bonds of each country but also simultaneously occurs among different countries. Bohdalova and Greguš [5] give a comprehensive description of the risk dependence and interdependence between selected European stock markets and Brexit equity in the period spanning from January, 7, 2000 to February, 3, 2017. They apply quantile regression to study behavior of extreme quantiles.…”

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

“…The results indicate that the risk increased before the event due to political uncertainty; the return series differed with their reactions due to different characteristics of sectors to which the returns belonged to. A quantile regression approach with inclusion of the binary variable for the Brexit was used in Bohdalova and Greguš (2017). This research observed bigger European markets (German, French, Irish, Spanish) and bigger emerging ones (Polish and Turkish), with the time span ranging from beginning of 2000 until February 2017.…”