The Effect of ‘Brexit’ Uncertainty on the FTSE 100 Index and the UK Pound

19 Pages Posted: 9 Dec 2020

See all articles by Rory McCann

Rory McCann

Centre for Financial Regulation and Innovation

Daniel Broby

University of Strathclyde - Department of Accounting and Finance

Date Written: October 3, 2020

Abstract

We investigate the impact of the uncertainty surrounding the United Kingdom’s proposed departure from the European Community (“Brexit”) on financial assets. We conduct an event study around the November 14th 2018 draft withdrawal agreement. Our motivation was that the economic impact of the various political permutations that persisted throughout the negotiation period were both measurable and distinct. The probability of each Brexit scenario that was discussed varied over the political discourse. Using opinion poll data we investigate the event impact on both the FTSE 100 and the UK Pound. We found that, in accordance with existing academic evidence, asset prices discounted the weighted probabilistic economic impact of likely outcomes. We observe, however, that this impact was not as immediate as theory suggests. Interestingly, currency markets had the greater sensitivity. Our conclusions have important implications for the pricing of country risk premia in general and the European Union in particular.

Keywords: Brexit, EU, Referendum, Risk, Investor, Sentiment, Market, Efficiency, Country Risk

JEL Classification: G10, G11, G12, G14

Suggested Citation

McCann, Rory McCann and Broby, Daniel, The Effect of ‘Brexit’ Uncertainty on the FTSE 100 Index and the UK Pound (October 3, 2020). Available at SSRN: https://ssrn.com/abstract=3711280 or http://dx.doi.org/10.2139/ssrn.3711280

Rory McCann McCann

Centre for Financial Regulation and Innovation ( email )

199 Cathederal Street
Glasgow, g4 0QU
United Kingdom
+447584072533 (Phone)

Daniel Broby (Contact Author)

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

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