The unexpected result of the Brexit referendum to withdraw from the EU resulted in high levels of political uncertainty, which affected financial markets adversely. To assess whether the Brexit caused disruptions a structural break test was conducted for stock and forex markets. The results suggest that only British stock markets experienced significant disruptions, which was although only minor relative to other adverse events in the last decade. On forex markets five exchange rate pairs were investigated. All conversion rate pairs, except the EUR-USD pair, showed significant responses. However, again in comparison to other events, the severity of the structural break was relatively petite. In the aftermath of the Brexit, British stock markets developed positive and outperformed many global stock markets, implying a positive reaction to Brexit. In order to rectify for actual developments, it was corrected for exchange rate effects in order to gauge the de facto gains/losses of British and European stock markets. Therefore, the difference-in-differences approach was applied, which indicated that losses for the FTSE 250 ranged between 12-16% and FTSE 100 losses lied between 6-9%. The EuroStoxx 600 evinced a similar range of losses of 5-8%. Based on the increase of country specific risk it is obvious that international diversified firms should have been less exposed. Hence, foreign involvement is hypothesised to diminish a firm's stock price reaction related to the Brexit. By virtue of an event study the impact of geographic business diversification was assessed on British and European (abnormal) stock returns on the index and the industry level. The results portend to a positive relationship of foreign involvement and stock returns, which implies that multinational presence of firms mitigated adverse stock reactions related to political shocks. On European index level the findings indicate a reversed relationship of stock returns and multinationality of firms.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Literature Review
- Multinationality
- Industries
- Energy
- Basic Materials
- Industrials
- Consumer Cyclicals
- Consumer Non-Cyclicals
- Financial Sector
- Healthcare
- Technology
- Telecommunication Services
- Utilities
- Data and Methodology
- Stock Market Reactions and Related Losses
- Structural Break
- Difference-in-Differences
- Multinationality
- Event Study
- Hypothesis Testing - Statistical Analysis
- Stock Market Reactions and Related Losses
- Empirical Results
- Stock Market Reactions and Related Losses
- Structural Break of Stock and Forex Markets
- Difference-in-Differences
- Multinationality Hypothesis on Index Level
- Event Study
- Event Study Exchange Rate Adjusted
- Hypothesis Testing
- Multinationality Hypothesis on Industry Level
- Event Study
- Mean Reversion
- Hypothesis Testing
- Stock Market Reactions and Related Losses
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This research examines the impact of the UK's decision to leave the European Union on the stock markets of the UK and the Eurozone. The study investigates the stock market reactions and related losses, considering the influence of multinationality on index and industry levels.
- Stock Market Reactions and Related Losses
- Multinationality Hypothesis on Index and Industry Level
- Event Study Methodology
- Statistical Analysis and Hypothesis Testing
- Empirical Results and Findings
Zusammenfassung der Kapitel (Chapter Summaries)
The Introduction sets the stage for the research, outlining the significance of the UK's departure from the EU and its potential impact on stock markets. It defines the key research questions and provides a roadmap for the study. The Literature Review surveys existing literature relevant to the research topic, including the concept of multinationality and its implications for stock market performance. This section delves into different industries and their potential responses to the UK's exit from the EU. The Data and Methodology chapter outlines the data sources used in the study and the specific methodologies employed. The methodologies include event study analysis, structural break analysis, and difference-in-differences analysis, as well as statistical hypothesis testing. The Empirical Results chapter presents the findings of the study, examining stock market reactions and related losses at both the index and industry levels. The results are analyzed based on the event study, structural break, and difference-in-differences methodologies, taking into account the influence of multinationality.
Schlüsselwörter (Keywords)
The core concepts of this work include the UK's exit from the EU, stock market reactions, multinationality, event study, structural break analysis, difference-in-differences analysis, hypothesis testing, and empirical results. The research focuses on industry-specific responses and utilizes statistical analysis to uncover the impact of the UK's departure on various stock market indices.
- Quote paper
- Christoph Siegele (Author), 2017, Brexit. Stock Market Reactions and Short-Term Reward of Geographic Business Diversification on British and European Index and Industry Level, Munich, GRIN Verlag, https://www.grin.com/document/377726
