Political uncertainty and sentiment: Evidence from the impact of Brexit on financial markets

Hudson, Robert; Urquhart, Andrew; Zhang, Hanxiong

Abstract

This paper investigates whether the impact of Brexit on financial markets is consistent with rational asset pricing models using 34 financial indices. Our results indicate that, whilst Brexit events affect both the risk and returns of stocks, the returns on event days are largely justified by the risk and the risk premium on those days. Our results support the appropriateness of rational asset pricing models even in a period of such high political uncertainty and potentially raised sentiment.

Citation

Hudson, R., Urquhart, A., & Zhang, H. (2020). Political uncertainty and sentiment: Evidence from the impact of Brexit on financial markets. European Economic Review, 129, Article 103523. https://doi.org/10.1016/j.euroecorev.2020.103523

• Journal Article Type: Article
• Acceptance Date: Jul 6, 2020
• Online Publication Date: Jul 16, 2020
• Publication Date: Oct 1, 2020
• Deposit Date: Jul 7, 2020
• Publicly Available Date: Jul 17, 2022
• Journal: European Economic Review
• Print ISSN: 0014-2921
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 129
• Article Number: 103523
• DOI: https://doi.org/10.1016/j.euroecorev.2020.103523
• Keywords: Event study; EU referendum; Risk; Investor sentiment; Market efficiency
• Public URL: https://hull-repository.worktribe.com/output/3537154
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0014292120301549?via%3Dihub