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.
Highlights
On 23 June 2016, the UK Government asked British citizens to decide whether to remain in or leave the European Union
In order to verify stock price reactions to the three different events related to Brexit, i.e. the announcements of the referendum date, the referendum result and the election of Theresa May as Prime Minister, we carried out different event studies
In order to investigate the determinants of significant cumulative abnormal return (CAR) quantified in the three event dates related to Brexit, we run some cross-sectional regressions on the four subsamples
Summary
On 23 June 2016, the UK Government asked British citizens to decide whether to remain in or leave the European Union. Our study first investigates short-term stock market reaction to the referendum result, focusing on export- and import-oriented industries It considers whether the referendum announcement can be a driver of political uncertainty. This allows us to analyze the financial consequences of Brexit on the UK, i.e. the country originating political uncertainty, and the spillover effect on other European countries This is the first paper running a text analysis of news about Brexit in order to investigate the consistency between the sentiment of mass media before and after the events and the stock market reaction.
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