TITLE:
The Effect of Political Instability on the UK Stock Returns: Evidence from 2016 eferendum and the Major Events that Followed
AUTHORS:
Bomin Liu, Mohammed Hamdan, Chloe Whiteley, Nasir Aminu
KEYWORDS:
Brexit, Stock Returns, Stock Price Effect, Event Study
JOURNAL NAME:
Theoretical Economics Letters,
Vol.12 No.6,
December
27,
2022
ABSTRACT: This study examines the consequences of six events
on the FTSE100 companies since the UK voted to leave the EU. These are the
events that created political uncertainty leading to two General Elections
within 30 months. The study examines the relationship between political
instability and stock return abnormalities, using event study methodology and
regression analysis to establish if such a link exists. Following each event,
the UK stock market index declined except when Brexit was extended by six
months (Event 5). The results of this study find a definite relationship
between instability and return abnormalities, with the post-event abnormal
returns proving to be the most significant over the event window. The industry
variables were found to be most strongly linked with the CAR values out of all
the independent variables, with the healthcare, utilities and basic materials
industries exhibiting the most significant reactions. The findings of this
study are an additional expectational tool for investors. It will be essential
for investors during times of uncertainty.