The Impact of Political Uncertainty on Asset Prices: The Case of the United Kingdom's EU Membership Referendum

50 Pages Posted: 9 Mar 2021

See all articles by Joseph Hanna

Joseph Hanna

Georgetown University - Georgetown University, Students

Niels-Jakob Hansen

International Monetary Fund (IMF)

Margaux MacDonald

International Monetary Fund (IMF)

Date Written: February 1, 2021

Abstract

How did expectations of the outcome of the United Kingdom's (UK) referendum on European Union (EU) membership in 2016 affect prices in financial markets? We study this using high frequency data from betting and financial markets. We find that a one percentage point increase in the probability of "Leave" result caused British stocks (FTSE All-Share) to decline by 0.004 percent, and the Pound to depreciate by 0.006 percent against the euro. We find negative and significant effects for most sub-sectors, and negative spill-overs to other EU member countries. We show that the differential impact across sectors and countries can be explained by differences in the trade exposures.

JEL Classification: D80, E65, G14, G18

Suggested Citation

Hanna, Joseph and Hansen, Niels-Jakob and MacDonald, Margaux, The Impact of Political Uncertainty on Asset Prices: The Case of the United Kingdom's EU Membership Referendum (February 1, 2021). IMF Working Paper No. 2021/027, Available at SSRN: https://ssrn.com/abstract=3799619

Joseph Hanna (Contact Author)

Georgetown University - Georgetown University, Students ( email )

Washington, DC
United States

Niels-Jakob Hansen

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Margaux MacDonald

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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