The Global Impact of Brexit Uncertainty

64 Pages Posted: 14 Jan 2020

See all articles by Tarek Alexander Hassan

Tarek Alexander Hassan

Boston University

Stephan Hollander

Tilburg University - Tilburg School of Economics and Management

Ahmed Tahoun

London Business School

Laurence van Lent

Frankfurt School of Finance and Management

Multiple version iconThere are 4 versions of this paper

Date Written: December 2019

Abstract

Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world; these measures are based on the proportion of discussions in quarterly earnings conference calls on the costs, benefits, and risks associated with the UK's intention to leave the EU. We identify which firms expect to gain or lose from Brexit and which are most affected by Brexit uncertainty. We then estimate effects of the different types of Brexit exposure on firm-level outcomes. We find that the impact of Brexit-related uncertainty extends far beyond British or even European firms; US and international firms most exposed to Brexit uncertainty lost a substantial fraction of their market value and have also reduced hiring and investment. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expect negative direct effects from Brexit (the first moment) should it come to pass. Most prominently, firms expect difficulties from regulatory divergence, reduced labor mobility, limited trade access, and the costs of post-Brexit operational adjustments. Consistent with the predictions of canonical theory, this negative sentiment is recognized and priced in stock markets but has not yet significantly affected firm actions.

Keywords: Brexit, cross-country effects, Machine Learning, sentiment, uncertainty

JEL Classification: D8, E22, E24, E32, E6, F0, G18, G32, G38, H32

Suggested Citation

Hassan, Tarek Alexander and Hollander, Stephan and Tahoun, Ahmed and van Lent, Laurence, The Global Impact of Brexit Uncertainty (December 2019). CEPR Discussion Paper No. DP14253, Available at SSRN: https://ssrn.com/abstract=3518592

Tarek Alexander Hassan (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Stephan Hollander

Tilburg University - Tilburg School of Economics and Management ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands
+31 13 466 8288 (Phone)
+31 13 466 8001 (Fax)

HOME PAGE: http://www.uvt.nl/people/s.hollander

Ahmed Tahoun

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Laurence Van Lent

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://www.laurencevanlent.org

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