The Impact of Political Uncertainty on Asset Prices: The Case of the United Kingdom's EU Membership Referendum
February 5, 2021
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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
Pages:
50
Volume:
2021
DOI:
Issue:
027
Series:
Working Paper No. 2021/027
Stock No:
WPIEA2021027
ISBN:
9781513568645
ISSN:
1018-5941
