Author(s)

Jiayi Wei

Corresponding Author

Jiayi Wei

Abstract

This research investigates the impacts of Brexit on stocks listed in the London Stock Exchange during 2016-2019. The event study approach is used to explore the impacts by evaluating pro and post stock market performance. This study is a more comprehensive study and an extension of Davies and Studnicka (2018), to deeper understand the heterogeneous impacts of Brexit. As a foundation, this study first conducts ratio analysis that evaluates total return, abnormal return (using CAPM), trading activity ratios and Ask-Bid spread of each stock. Second, Brexit related events were classified into two categories, by events’ force of increasing or decreasing the probability of Brexit to happen, and their corresponding effects on stock movements. The findings show Brexit related events have overall negative impacts on stock returns. Further, there are significant changes in trading activities surrounding event days; different types of events have heterogeneous effects. This article shed light on intellectual understanding about the interactions between political uncertainty and financial market.

Keywords

Brexit; Event Study; Market Exposure