The aim of this bachelor's thesis is to answer the question whether Brexit has negatively or positively affected the financial markets and why. The first two chapters will present the foundations for this thesis, namely more selective information about Brexit, how and why the vote was made, and also about the financial markets and their importance. Since the UK’s official exit from the EU will take place on March 29th, 2019, it is still unclear what the consequences of Brexit will be. Therefore, the main part will focus on the period before and after the referendum, tracking when Brexit's influence began and how it had evolved over the years. In addition, a brief forecast will be given as to how the UK’s withdrawal might eventually affect financial markets. The three financial markets that will be a subject in this thesis are: the foreign exchange market, the stock market and the government bond market. This bachelor’s thesis will be mainly focusing on the markets inside the UK, as the effects there are expected to be the most significant.
Due to its ambiguity and topicality, Brexit is the subject of many studies and analysis. This work will be based mainly on two studies: "Kiel Institute for the World Economy"'s study by Raddant, and "Deutsches Institut für Wirtschaftsforschung"'s study by Caporale et al. Through descriptive literature research and analysis of scientific literature, newspaper articles and government reports, will be examined how and why Brexit has influenced the markets in one way or another. The argumentation will be supported by daily observations of the GBP/USD, GBP/EUR, FTSE 100, UK EPU and 10-Y UK Gilts in the period between January 2016 and June 2018, as well as by self-created graphics based on these observations.
Table of Contents
1. Introduction
2. Definition and Reasons for Brexit
3. Definition and Importance of Financial markets
3.1 Currency market/Foreign exchange market
3.2 Stock market
3.3 Government bond market
4. Influence of Brexit on the Financial markets
4.1 Before the Referendum
4.2 After the Referendum
4.3 Influence in 2017
4.4 Influence in 2018 and Forecasts
5. Conclusion
Objectives and Core Topics
The primary objective of this bachelor's thesis is to empirically analyze whether the Brexit referendum and its subsequent developments have exerted a positive or negative impact on the financial markets within the United Kingdom. By tracking the evolution of key financial indicators through the period of 2016 to 2018, the research seeks to provide a comprehensive understanding of market volatility and investor behavior in response to political uncertainty.
- Impact of Brexit on the UK foreign exchange market (GBP/USD, GBP/EUR).
- Analysis of stock market fluctuations, with a focus on the FTSE 100 index.
- Evaluation of the government bond market (10-Y UK Gilts) as a secure investment.
- Assessment of Economic Policy Uncertainty (EPU) trends post-referendum.
- Discussion of future market scenarios including 'Soft Brexit', 'CETA/Malleable Brexit', and 'Hard Brexit'.
Excerpt from the Book
1. Introduction
On June 23rd, 2016 Britain wrote history, becoming the first country ever to vote to leave the European Union. Together with the people's division regarding the vote, Brexit hid a lot of ambiguity and risk. The future EU-UK relations was yet to be renegotiated, and uncertainty about the consequences immediately had an impact on the markets. The risks for the financial markets have been enormous since London was one of the leading financial centers in recent years, and the financial services sector is a driving and supporting force for the UK’s economy.
The aim of this bachelor's thesis is to answer the question whether Brexit has negatively or positively affected the financial markets and why. The first two chapters will present the foundations for this thesis, namely more selective information about Brexit, how and why the vote was made, and also about the financial markets and their importance. Since the UK’s official exit from the EU will take place on March 29th, 2019, it is still unclear what the consequences of Brexit will be. Therefore, the main part will focus on the period before and after the Referendum, tracking when Brexit's influence began and how it had evolved over the years. In addition, a brief forecast will be given as to how the UK’s withdrawal might eventually affect financial markets.
Summary of Chapters
1. Introduction: Presents the research motivation, defining the objective to analyze Brexit's impact on UK financial markets and outlining the methodology based on empirical studies and market observation.
2. Definition and Reasons for Brexit: Examines the historical and political origins of the Brexit vote, focusing on themes such as national sovereignty, immigration, and trade policy.
3. Definition and Importance of Financial markets: Provides the theoretical foundations of capital markets, specifically focusing on the mechanics and relevance of the currency, stock, and government bond markets.
4. Influence of Brexit on the Financial markets: Analyzes the empirical impact of Brexit across different time periods: the pre-referendum phase, the immediate post-referendum period, 2017, and early 2018.
5. Conclusion: Summarizes the key findings, confirming that while Brexit triggered short-term volatility and negative shocks, the long-term impacts were mitigated by institutional interventions and market adjustments.
Keywords
Brexit, Financial Markets, UK Economy, Foreign Exchange, Stock Market, FTSE 100, Government Bonds, Gilts, Monetary Policy, Economic Policy Uncertainty, Referendum, Trade Negotiations, Volatility, Capital Markets, Bank of England.
Frequently Asked Questions
What is the fundamental focus of this thesis?
This work examines the correlation between the political uncertainty surrounding the Brexit vote and the volatility of the UK's core financial sectors.
Which specific areas of the financial markets are analyzed?
The study centers on three critical segments: the currency market (foreign exchange), the stock market (specifically FTSE 100), and the government bond market.
What is the primary research question?
The thesis aims to determine whether Brexit has generated a predominantly negative or positive effect on the performance and stability of UK financial markets.
Which scientific methodology is employed?
The research utilizes descriptive literature analysis, review of government reports, and empirical examination based on daily tracking of financial indices and self-created data graphics.
What does the main body of the work cover?
It provides a chronological investigation of market reactions from before the 2016 referendum through to 2018, assessing how political events influenced investor confidence.
Which keywords best characterize the analysis?
Key thematic identifiers include Brexit, Equity Markets, Gilt yields, Monetary Stimulus, and Market Volatility.
How did the FTSE 100 behave following the initial Brexit shock?
Interestingly, the stock market showed resilience, with leading companies benefiting in part due to their international revenue exposure in foreign currencies, though it remained subject to periods of high volatility.
How does the author evaluate the "Hard Brexit" scenario?
"Hard Brexit" is identified as the most probable but also the most detrimental scenario for the UK's financial services leadership, likely leading to potential market declines due to loss of EU-wide benefits.
- Arbeit zitieren
- Andrea Büger (Autor:in), 2018, The Impact of Brexit on Financial Markets. An In-Depth Analysis of the Foreign Exchange, Stock, and Government Bond Markets in the UK, München, GRIN Verlag, https://www.grin.com/document/1437197
