Expectations and financial markets: Lessons from Brexit
Corresponding Author
Chen Gu
Shanghai Business School, Research Center of Finance, Shanghai, China
Correspondence
Chen Gu, Shanghai Business School, Research Center of Finance, 2271 West Zhongshan Rd, Room 1410, Shanghai 200235, China.
Email: chengu1031@126.com
Search for more papers by this authorAnn Marie Hibbert
Department of Finance, John Chambers College of Business and Economics, West Virginia University, Morgantown, West Virginia
Search for more papers by this authorCorresponding Author
Chen Gu
Shanghai Business School, Research Center of Finance, Shanghai, China
Correspondence
Chen Gu, Shanghai Business School, Research Center of Finance, 2271 West Zhongshan Rd, Room 1410, Shanghai 200235, China.
Email: chengu1031@126.com
Search for more papers by this authorAnn Marie Hibbert
Department of Finance, John Chambers College of Business and Economics, West Virginia University, Morgantown, West Virginia
Search for more papers by this authorAbstract
We use the setting of Brexit to investigate how financial markets react to news about political events. We provide robust evidence that political risk is priced by equity markets globally. Furthermore, commodity, government bonds, and currency markets are also affected by political uncertainty. However, our intraday results reveal that markets respond very quickly to political news as changes in the probability of Brexit was impounded into equity prices within 5 min. Our findings also show that investor attention significantly influences the link between the market's expectations of political events and asset prices.
Supporting Information
| Filename | Description |
|---|---|
| fire12248-sup-0001-Appendix.pdf319.6 KB |
Table B.1 Intraday regression results for the other European markets Table B.2 Regression results for financial assets returns and implied volatilities with an attention dummy for other markets (betting odds data) Table C1: Impact of an Increase in the Probability of Brexit based on the Heteroskedasticity-based Approach Table C2: Polls Data Regression Results for Stock Market Returns and Implied Volatilities with an Attention Dummy |
Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.
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