Mind the (trade) gap! How costly is erecting barriers to trade?

80 Pages Posted: 19 Nov 2020 Last revised: 25 Oct 2021

See all articles by Beata Gafka

Beata Gafka

University of Oxford, Said Business School, Students

Date Written: October 24, 2021

Abstract

Brexit referendum disrupted global trade: UK's exchange with EU and numerous third countries would suffer. Relative stock prices reacted accordingly with the damage greater and longer-lasting for the UK than the block. UK-focused manufacturing fared worst in both regions. UK's EU-exposed services firms were also impacted – the market correctly expected December 2020 ''no-deal'' outcome for that sector. Third-country exposure attenuated the shock's impact on EU but not UK companies. Consequently, the UK zone factor underperformed the old-EU one by 20 pp between 2016 and 2019. Brexit exposure high-low portfolio explains 70% of the time-series variation in this underperformance. Overall, the results showcase impact of trade de-liberalization on firm and country business risk.

Keywords: Brexit, Political Uncertainty Risk, Stock Returns

JEL Classification: G12, G14, F15

Suggested Citation

Gafka, Beata, Mind the (trade) gap! How costly is erecting barriers to trade? (October 24, 2021). Available at SSRN: https://ssrn.com/abstract=3702630 or http://dx.doi.org/10.2139/ssrn.3702630

Beata Gafka (Contact Author)

University of Oxford, Said Business School, Students ( email )

Oxford, OX1 AHP
United Kingdom

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