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Better the Devil You Know: The Impact of Brexit Political Uncertainty on European Financial Markets

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  • Doriana Cucinelli
  • Vincenzo Farina
  • Paola Schwizer
  • Maria Gaia Soana

Abstract

The paper investigates the market reaction to three different events related to Brexit through an event study analysis, i.e. the announcements of the referendum date (20 February 2016), the referendum result (23 June 2016) and the election of Theresa May as Prime Minister (11 July 2016). We study the impact of these announcements on stock prices of UK companies belonging to export- and import-oriented industries. We also investigate the influence of previous events on stock prices of European companies belonging to the same sectors. Our results show that financial markets did not perceive the announcement of the referendum date and the election of Theresa May as Prime Minister as elements of political uncertainty. However, in the days before the referendum, investors priced it as an uncertain political event. The text analysis conducted on mass media sentiment about Brexit mainly supports the results of our event studies. Stock market performance around the events depends more on industry factors than on firm-specific characteristics, for both UK and EU companies. The only exception is company size, which positively affects investor reaction.

Suggested Citation

  • Doriana Cucinelli & Vincenzo Farina & Paola Schwizer & Maria Gaia Soana, 2021. "Better the Devil You Know: The Impact of Brexit Political Uncertainty on European Financial Markets," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(6), pages 1-62, July.
    • Handle: RePEc:ibn:ijbmjn:v:15:y:2021:i:6:p:62
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    Cited by:

    1. Paritosh Chandra Sinha, 2021. "Attention to the Election-Economics-Politics (EEP) Nexus in the Indian Stock Markets," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 13(1), pages 7-32, June.

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    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
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