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The Impact of Political Uncertainty on Asset Prices: The Case of the United Kingdom's EU Membership Referendum
Author:
Mr. Niels-Jakob H Hansen
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and
Ms. Margaux MacDonald
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Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 027
Language:
English
Publication Date:
05 Feb 2021
DOI:
https://doi.org/10.5089/9781513568645.001
ISBN:
9781513568645
ISSN:
1018-5941
Pages:
50
Keywords:
Brexit; EU referendum; political uncertainty; high frequency data.
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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How did expectations of the outcome of the United Kingdom's (UK) referendum on European Union (EU) membership in 2016 affect prices in financial markets? We study this using high frequency data from betting and financial markets. We find that a one percentage point increase in the probability of "Leave" result caused British stocks (FTSE All-Share) to decline by 0.004 percent, and the Pound to depreciate by 0.006 percent against the euro. We find negative and significant effects for most sub-sectors, and negative spill-overs to other EU member countries. We show that the differential impact across sectors and countries can be explained by differences in the trade exposures.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2021: Issue 027