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Expectations and financial markets: Lessons from Brexit

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  • Chen Gu
  • Ann Marie Hibbert

Abstract

We use the setting of Brexit to investigate how financial markets react to news about political events. We provide robust evidence that political risk is priced by equity markets globally. Furthermore, commodity, government bonds, and currency markets are also affected by political uncertainty. However, our intraday results reveal that markets respond very quickly to political news as changes in the probability of Brexit was impounded into equity prices within 5 min. Our findings also show that investor attention significantly influences the link between the market's expectations of political events and asset prices.

Suggested Citation

  • Chen Gu & Ann Marie Hibbert, 2021. "Expectations and financial markets: Lessons from Brexit," The Financial Review, Eastern Finance Association, vol. 56(2), pages 279-299, May.
    • Handle: RePEc:bla:finrev:v:56:y:2021:i:2:p:279-299
    DOI: 10.1111/fire.12248
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    4. Oleg Kucher & Alexander Kurov & Marketa Halova Wolfe, 2023. "A shot in the arm: The effect of COVID‐19 vaccine news on financial and commodity markets," The Financial Review, Eastern Finance Association, vol. 58(3), pages 575-596, August.

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