The Impact of Political Uncertainty on Asset Prices: The Case of the United Kingdom's EU Membership Referendum

By Joseph Hanna, Niels-Jakob H Hansen, Margaux MacDonald

February 5, 2021

Preview Citation

Format: Chicago

Joseph Hanna, Niels-Jakob H Hansen, and Margaux MacDonald. The Impact of Political Uncertainty on Asset Prices: The Case of the United Kingdom's EU Membership Referendum, (USA: International Monetary Fund, 2021) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

How did expectations of the outcome of the United Kingdom's (UK) referendum on European Union (EU) membership in 2016 affect prices in financial markets? We study this using high frequency data from betting and financial markets. We find that a one percentage point increase in the probability of "Leave" result caused British stocks (FTSE All-Share) to decline by 0.004 percent, and the Pound to depreciate by 0.006 percent against the euro. We find negative and significant effects for most sub-sectors, and negative spill-overs to other EU member countries. We show that the differential impact across sectors and countries can be explained by differences in the trade exposures.

Subject: Economic sectors, Financial crises

Keywords: Brexit, EU referendum, High frequency data., Political uncertainty

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/027
Stock No:

WPIEA2021027
ISBN:

9781513568645
ISSN:

1018-5941

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