Srdan Tatomir, Iryna Kaminska, Marek Raczko and Gregory Thwaites
How have equity markets responded to news about Brexit? To answer this we split firms into those whose share prices are particularly sensitive to Brexit-related news, and those which are not. The latter group provides a “control sample”, against which to assess the impact of individual pieces of news on the former. The ratio of the two groups’ prices gives a barometer of equity market sentiments around Brexit. So far, this measure points to downward pressure on valuation of companies more exposed to Brexit. The bulk of the fall occurred on the night of the referendum, with little movement afterwards, suggesting little additional “news” from subsequent developments beyond the immediate aftermath.
Marek Raczko, Mo Wazzi and Wen Yan
Economists view the United Kingdom as a small-open economy. In economists’ jargon it means that the UK is susceptible to foreign shocks, but that UK shocks do not influence other countries. This definitely was not the case in 2016. The result of the EU referendum, even though it was a UK-specific policy event, had a global impact. Our analysis shows that the Brexit vote not only had a significant impact on UK bond and equity markets, but also spilled over significantly to other advanced economies. Moreover, this approach suggests that the initial Brexit-shock has only partially reversed and still remains a drag on global bond yields and equity prices, though there are wide error bands around that conclusion.