The Impact of Brexit on Financial Markets. An In-Depth Analysis of the Foreign Exchange, Stock, and Government Bond Markets in the UK

Abstract or Introduction

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.