The sectoral effects of Brexit on the British economy: early evidence from the reaction of the stock market

ABSTRACT

We investigate the impact of the outcome of the EU referendum (Brexit) on various sectors of the British economy over the period June–July 2016. Using the event study methodology, we assess the effects of Brexit, relative to what had been anticipated, as measured by abnormal returns (ARs). The results show that the banking and travel and leisure sectors were affected negatively, with a cumulative AR of −15.37% for the banking sector. We observe that Brexit has a mixed effect on ARs with apparent sector-by-sector differences.

KEYWORDS:

• EU referendum
• BREXIT
• abnormal returns
• event study
• systematic risk

JEL CLASSIFICATION:

• G14
• G18

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The results of these tests are available upon request from the corresponding author.

² https://next.ft.com/content/a3a92744-3a52-11e6-9a05-82a9b15a8ee7.

³ http://www.independent.co.uk/voices/brexit-economy-ftse-value-of-the-pound-is-the-worst-over-think-again-europe-a7120891.html, https://woodfordfunds.com/economic-impact-brexit-report/, https://www.theguardian.com/business/2016/jul/08/brexit-fallout-the-economic-impact-in-six-key-charts, http://globalsustain.org/files/Atradius_Economic_Research_Brexit_Top_5_ERU091503en.pdf, http://www.nortonrosefulbright.com/knowledge/publications/136979/impact-of-a-brexit-on-the-energy-sector, http://www.forbes.com/sites/phillempert/2016/06/29/brexit-the-ny-fancy-food-show-the-impact-on-imported-foods/2/#26c9d0502688, http://www.wired.co.uk/article/uk-technology-science-eu-brexit http://www.aljazeera.com/programmes/countingthecost/2016/07/brexit-fallout-global-economic-impact-160709061414509.html.