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Empirical analysis of market reactions to the UK’s referendum results – How strong will Brexit be?

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  • Aristeidis, Samitas
  • Elias, Kampouris

Abstract

This paper studies the effects of the June 2016 United Kingdom European Union membership referendum and the subsequently triggered article 50 on 43 major developed and emerging stock markets. Specifically, on a bivariate basis, we use dependence dynamics through copulas with regime switching of Silva Filho et al. (2012) using intraday data returns to identify contagion among stock markets. The empirical results add significant evidence to the literature on the financial contagion from the Brexit to other countries for a very large sample thus far. Evidence shows that the methodology identified immediate financial contagion produced from the referendum results. However, the contagion was not sufficiently significant given the short duration. In general, results showed instant financial contagion due to the shock and increased uncertainty from the referendum results; however, the shock and uncertainty were very limited, because a few days after the polling day, most stock exchange markets had fully recovered their losses. The approach provides significant information not only to policymakers but also to investors about the stock market’s reaction to the expected Brexit.

Suggested Citation

  • Aristeidis, Samitas & Elias, Kampouris, 2018. "Empirical analysis of market reactions to the UK’s referendum results – How strong will Brexit be?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 263-286.
  • Handle: RePEc:eee:intfin:v:53:y:2018:i:c:p:263-286
    DOI: 10.1016/j.intfin.2017.12.003
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    More about this item

    Keywords

    Brexit; Contagion; Dependence dynamics; Copula; Regime-switching;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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