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The heterogeneous impact of Brexit: Early indications from the FTSE

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  • Davies, Ronald B.
  • Studnicka, Zuzanna

Abstract

The UK’s decision to leave the EU is surrounded by several studies simulating its potential effects. We take an alternative approach by examining how news of Brexit affected expectations as embodied in stock returns using a two-stage estimation process. While most firms had negative returns following news of the referendum’s result (with nearly $3 trillion wiped off global markets), there was considerable heterogeneity in their changes relative to expectations. We show that this heterogeneity can be explained by the firm’s global value chain, with firms heavily exposed to the EU and UK doing worse. In addition, we find that firms reliant on imported intermediates also perform worse. This, however, is partially offset via intra-firm trade in intermediates when Sterling fell relative to host currencies. These changes were primarily in the first two trading days and highly persistent. Understanding these movements gives a better understanding of Brexit’s potential effects.

Suggested Citation

  • Davies, Ronald B. & Studnicka, Zuzanna, 2018. "The heterogeneous impact of Brexit: Early indications from the FTSE," European Economic Review, Elsevier, vol. 110(C), pages 1-17.
  • Handle: RePEc:eee:eecrev:v:110:y:2018:i:c:p:1-17
    DOI: 10.1016/j.euroecorev.2018.08.003
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    Cited by:

    1. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson & Ahmed Usman, 2018. "The Economic Effects of Brexit: Evidence from the Stock Market," Fiscal Studies, John Wiley & Sons, vol. 39(4), pages 581-623, December.
    2. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2019. "Voting with their Money: Brexit and Outward Investment by UK Firms," CEPR Discussion Papers 13850, C.E.P.R. Discussion Papers.
    3. repec:zbw:ifweej:201923 is not listed on IDEAS
    4. Costa, Rui & Dhingra, Swati & Machin, Stephen, 2019. "Trade and Worker Deskilling," CEPR Discussion Papers 13768, C.E.P.R. Discussion Papers.
    5. Davies, Ronald B., 2019. "Thoughts on the demise of FDI," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 13, pages 1-5.
    6. repec:kap:iecepo:v:16:y:2019:i:1:d:10.1007_s10368-018-00424-z is not listed on IDEAS
    7. Wael Bousselmi & Patrick Sentis & Marc Willinger, 2018. "Impact of the Brexit vote announcement on long-run market performance," CEE-M Working Papers hal-01954920, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    8. Samir Kadiric & Arthur Korus, 2018. "Effects of Brexit on Corporate Yield Spreads: Evidence from UK and Eurozone Corporate Bond Markets," EIIW Discussion paper disbei251, Universitätsbibliothek Wuppertal, University Library.
    9. repec:kap:iecepo:v:16:y:2019:i:1:d:10.1007_s10368-018-00423-0 is not listed on IDEAS
    10. Wael Bousselmi & Patrick Sentis & Marc Willinger, 2018. "Impact of the Brexit vote announcement on long-run market performance," Working Papers hal-01954920, HAL.
    11. Blank, Sven & Egger, Peter H. & Merlo, Valeria & Wamser, Georg, 2018. "A structural quantitative analysis of services trade de-liberalization," Discussion Papers 47/2018, Deutsche Bundesbank.

    More about this item

    Keywords

    Global value chain; Event study; Brexit;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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