A Storm But No Damage? A Two-Country Equity and Currency Market Perspective of Brexit

Abstract

This paper analyses the impact of the June 23, 2016 Brexit vote on the British and Australian currency and equity markets. The two markets are particularly interesting as they were both strongly impacted by the Brexit vote, have cross-listed stocks and non-overlapping trading hours. Whilst the currency changes were immediate in both countries due to continuous 24-hour trading, the equity market effects occurred sequentially, led by the ASX and followed by the LSE. The analysis demonstrates that equity markets (in contrast to the currency markets) overreacted to the Brexit vote as the initial market reaction was fully corrected within five trading days. More importantly perhaps, the findings also indicate that non-synchronous trading can distort and delay price adjustments.