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Temporary Border Controls and the Stock Market: Evidence from the Schengen Area

Author

Listed:
  • Adam Levai

    (Luxembourg Institute of Socio-Economic Research (LISER))

  • Jean-François Maystadt

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This paper evaluates the impact of temporary border controls on the stock market. We construct a new dataset on the reintroduction of border controls by collecting data from official documents. We use these data in two complementary research designs. First, we conduct a quasi-experimental event study using the first refugee-induced border control, which occurred in Germany in September 2015. Second, we conduct a Schengen area analysis covering all border controls between 2006 and 2016, using both a difference-in-difference and a synthetic control method. In both analyses, we find a small negative and short-lived effect on daily stock returns, as well as an increase in their short-lived volatility. These effects are driven by medium and large firms, which are more likely to be involved in cross-border activities. Overall, we find that these border controls initially mildly worsen market expectations, but the market does not overreact by interpreting them as a sign of a possible collapse of the Schengen Agreement.

Suggested Citation

  • Adam Levai & Jean-François Maystadt, 2023. "Temporary Border Controls and the Stock Market: Evidence from the Schengen Area," LIDAM Discussion Papers IRES 2023016, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2023016
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    File URL: https://sites.uclouvain.be/econ/DP/IRES/2023016.pdf
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    References listed on IDEAS

    as
    1. Jesús Fernández-Huertas Moraga & Hillel Rapoport, 2015. "Tradable Refugee-admission Quotas and EU Asylum Policy," CESifo Economic Studies, CESifo Group, vol. 61(3-4), pages 638-672.
    2. Stephen J. Redding & Daniel M. Sturm, 2008. "The Costs of Remoteness: Evidence from German Division and Reunification," American Economic Review, American Economic Association, vol. 98(5), pages 1766-1797, December.
    3. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    4. repec:hal:pseose:hal-01304179 is not listed on IDEAS
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    More about this item

    Keywords

    Borders; Border Controls; Schengen; Stock Market; Refugees;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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