The Economic Effects of Brexit - Evidence from the Stock Market

41 Pages Posted: 31 Oct 2018

See all articles by Holger Breinlich

Holger Breinlich

University of Surrey - School of Economics; Centre for Economic Policy Research (CEPR); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Elsa Leromain

London School of Economics & Political Science (LSE) - London School of Economics

Dennis Novy

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR); Centre for Economic Performance (CEP); CESifo (Center for Economic Studies and Ifo Institute)

Thomas Sampson

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Ahmed Usman

University of Nottingham

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

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 migrants in different industries and stock market returns.

Keywords: Brexit, depreciation, event study, recession, stock market, tariffs

JEL Classification: F150, F230, G140

Suggested Citation

Breinlich, Holger and Leromain, Elsa and Novy, Dennis and Sampson, Thomas and Usman, Ahmed, The Economic Effects of Brexit - Evidence from the Stock Market (2018). CESifo Working Paper No. 7224, Available at SSRN: https://ssrn.com/abstract=3275398

Holger Breinlich (Contact Author)

University of Surrey - School of Economics ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Elsa Leromain

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

Dennis Novy

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 (0) 2476150046 (Phone)

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/novy/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Thomas Sampson

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Ahmed Usman

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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