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Brexit: (Not) another Lehman moment for banks?
Abstract
We analyze the stock and CDS market reactions around the UK's EU membership referendum (“Brexit”) on June 23, 2016, and the Lehman Brothers bankruptcy filing on September 15, 2008. We find that the short-run drop in stock prices to the Brexit announcement was more pronounced than to Lehman's bankruptcy, particularly for EU banks. Additionally, for EU banks, a large increase in CDS spreads can be observed. Yet, compared to the Lehman bankruptcy filing, this increase is still relatively small. For non-EU banks, we observe neither significant stock nor CDS price reactions.
... In particular, the DJIA declines by 3.4% and the DAX by 6,8% , respectively (Dao et al., 2019). The banking sector depreciated more substantially than it did when Lehman Brothers collapsed (Schiereck et al. 2016). In this new era, it is highly likely that the investment cost in the UK will rise as different regulatory authorities and business environments between the two sides will increase, affecting the country's competitiveness and entrepreneurship (Sampson, 2017). ...
... As we already mentioned, the stock market, and particularly, the FTSE-100 performance during the first moments of the opening day after the referendum, but also the days afterward, has been at the center of this analysis. Global equity markets also suffered temporary turbulence after a sharp sell-off in equities around the world, while specific financial sectors such as banks hit particularly hard (see Bullock, 2016;Schiereck et al. 2016). Through various studies, the existing literature could be divided into three streams. ...
... The first stream is directly linked with the research questions of this study, yet the second stream is also important for a better understanding of the economic and political uncertainty that the management of Brexit will cause (see Section 5). Schiereck et al. (2016) examined the impact of the UK's referendum decision on banks' share prices and credit default swap (CDS) spreads (EU and non-EU), as well as the reaction to the bankruptcy filing of Lehman Brothers in 2008. Their findings showed that the impact of the UK referendum result was mainly concentrated on EU banks in comparison to the Lehman Brothers bankruptcy which had a negative impact on market indices. ...
We study the impact of the Brexit vote on tail risk in the UK financial markets. To this end, we estimate a widely used measure of risk, the Value at Risk, as an indicator of tail risk. We use extreme value theory, based on the peaks-over-threshold method, to model the extremes over a high threshold before and after the UK’s momentous decision to leave the European Union employing non-parametric and semi-parametric estimation techniques. We apply a bias-corrected method to reduce small sample estimation bias through a non-parametric bootstrap simulation. For the analysis, we focus on the FTSE-100 index, the GBP/EUR exchange rate, the Treasury Gilt, and nine credit default swaps of the most important industry sectors. The findings suggest that the new structure of downside tail risk -either frequency or magnitude- associated with large losses is not higher than its pre-Brexit levels. However empirical evidence suggests that the upside-tail estimates (i.e., the likelihood of large profits) have now decreased.
... The overall cost of Brexit to the UK economy is estimated to reach £200bn by the end of 2020 (Bloomberg, 2020) in general. Preliminary studies (Adesina, 2017;Oehler et al., 2017;Ramiah et al., 2017;Schiereck et al., 2016) following the referendum have also confirmed the negative short-term effects of the Brexit shock on the financial markets, in particular. Apart from the potential impacts of the referendum on the UK economy and financial markets, it is expected that there will be some negative shocks on the other economies through different channels, as the globalisation makes the markets significantly interlinked as experienced in 2008 global financial crisis. ...
... As can be seen, various arguments indicated that Brexit affected the economies partially. Some express that it had been worse than Lehman's bankruptcy (Schiereck et al., 2016), whilst others state that there would be some cost of living but advocating Britain could overcome difficulties (Springford et al., 2014). It is apparent that the controversy on the issue is still ongoing and remained unresolved [3]. ...
... On the other hand, several researchers have investigated the impact of Brexit on the global financial markets through CDS, exchange rates and stock markets. Schiereck et al. (2016) analysed the stock and CDS market recoil around the Brexit on 23 June 2016 and the Lehman Brothers bankruptcy filing on 15 September 2008. Interestingly, they discovered the short-run decline in stock prices to the Brexit announcement was more evident than Lehman's bankruptcy filing, especially for EU banks. ...
Purpose
This paper aims to study the co-movement dynamics of Islamic equity returns to explain international portfolio diversification opportunities for investors having a heterogeneous stock holding period in light of Brexit.
Design/methodology/approach
The authors use the following three recent methodologies: the multivariate generalised autoregressive conditional heteroskedastic-dynamic conditional correlations, continuous wavelet transforms and maximum overlap discrete wavelet transform. Dow Jones Islamic country-based indexes are used from 2 September 2013 to 31 December 2019.
Findings
There is a high correlation between the United Kingdom (UK) Islamic stock market return with the Canadian, USA, Malaysian and Indian implying lesser diversification benefits for the investors. However, the results tend to indicate that UK Islamic stock market investors who have allocated their investment in Sri Lanka, Kuwait, Japan and Turkey have enjoyed diversification benefits. Besides, there is a declining correlation between UK Islamic stock markets and other selected markets aftermath of Brexit. Turkey seems the most volatile stock over the period, appealing to risk-lover investors to gain from price changes. When the shock occurs in the financial sector, the volatility is mean-reverting faster than other markets in Sri Lanka. On the other hand, Malaysia appears to have the least volatility implying a stable financial sector.
Research limitations/implications
The results tend to shed light on effective portfolio diversification benefits in light of the recent shock (Brexit) between the UK Islamic stock index and other selected indexes that vary from country to country depending on investment horizons. This critically confirms the significance of heterogeneity in investment horizons and provides significant inferences for portfolio diversification strategies.
Originality/value
To the best of the authors’ knowledge, this study is the first study investigating the Brexit effect on Islamic stocks, guiding Shariah sensitive investors in their diversification strategies, providing information to investors to consider the implications of this incident on Islamic stocks for future shocks.
... Since the 2016 UK referendum on membership of the European Union, there has been a flurry of research on the implications of the British decision to leave the European Union ("Brexit") on the United Kingdom and European economies. Most of this research consists of stock market event-studies centred on short-term impacts (Oehler, Horn, & Wendt, 2017;Ramiah, Pham, & Moosa, 2017;Schiereck, Kiesel, & Kolaric, 2016;Tielmann & Schiereck, 2017). Howarth and Quaglia (2017) adopt a distinct approach and infer the potential ramifications of Brexit by extensively documenting the influence of the United Kingdom on the regulatory and structural integration of European financial markets in the past two decades. ...
... Most of post-Brexit research focuses on the direct impact of the Brexit vote on stock returns in various industries. Tielmann & Schiereck, 2017, Schiereck et al. (2016 and Ramiah et al. (2017), conduct an event study on the impact of the referendum outcome on the stock returns of European Union, United Kingdom, and non-EU banks, of companies in the logistics industry and on all UK industries, respectively. Tielmann and Schiereck (2017)'s study of cumulative abnormal return (CAR) is centred on the day after the referendum, Friday, June 24, 2016, with an event window of 4 days before the 24 June and 10 days after the 24 June. ...
... Tielmann and Schiereck (2017)'s study of cumulative abnormal return (CAR) is centred on the day after the referendum, Friday, June 24, 2016, with an event window of 4 days before the 24 June and 10 days after the 24 June. Schiereck et al. (2016) find large, negative average cumulative average returns during the [0; + 1] event window, where the event date is June 24, 2016. Ramiah et al. (2017) analyse the impact of the Brexit vote on abnormal returns (ARs) between June 2010 and July 2016, and on cumulative abnormal returns (CARs) up to 10 days after the Brexit vote. ...
This paper investigates whether macroeconomic shocks, such as the UK's referendum decision to leave the European Union (“Brexit”), the 2008 Financial Crisis, the 1992 ERM Crisis (“Black Wednesday”), and the 1987 stock market crash (“Black Monday”), had a positive impact on portfolio risk diversification. We estimate weekly dynamic conditional correlations and then optimal sectoral portfolio allocations between 1973 and 2019. Our results show that correlations of equity returns increased as a consequence of economic integration among European countries from the mid‐1980s until the late 2000s, and decreased in the United Kingdom after Black Wednesday and the Brexit referendum. We tested the existence of a correlation change‐point on June 27, 2016 by applying Wied et al. (2012)'s [Econometric Theory, 28(3), 570–589] correlation structural break test, which we modified to account for dynamic conditional correlations. Application of this test confirms that the referendum date was a break‐point in nearly all UK manufacturing industries. The failure of Lehman Brothers and the 1987 stock market crash were also identified as structural breaks in equity correlations. Moreover, our findings suggest that the Brexit vote may constitute a long‐term trend reversal of the convergence of equity return correlations in European markets, akin to Black Wednesday, rather than a shock like the 1987 and 2008 financial crises, which merely intensified a historical upward trend in correlations of European equity returns.
... Our paper focuses on the effect of the Brexit referendum on bank stock returns. There are two strands of literature about Brexit, studying its effects: i) on stock market volatility, based on the assumption that the referendum outcome heralded a period of political uncertainty (Krause et al., 2016;Schiereck et al., 2016;Smales, 2017;Dibiasi, Abberger, Siegenthaler, & Sturm, 2018), and ii) on stock market prices, investigating the consequences of Brexit as geo-political and economic event. ...
... The second strand of literature, which is recent and relatively underdeveloped, focuses on the impact of Brexit on stock prices (Schiereck et al., 2016;Oehler et al., 2017;Ramiah et al., 2017;Tielman & Schiereck, 2017;Hill ijbm.ccsenet.org International Journal of Business and Management Vol. ...
... However, the focus on the banking system is particularly important because investors are increasingly concerned about the ability of banks to withstand the consequences of Brexit (Chabot, Bertrand, & Thorez, 2019). Schiereck et al. (2016) compare Brexit with the Lehman Brothers crisis. They find that the former was not "another Lehman Brothers moment" for banks, for two reasons: first, the short-term drop in the bank stock market after the Lehman crisis was stronger than in the case of Brexit. ...
We examine the impact of three events related to Brexit on stock prices of UK and European banks: i) the announcement of the referendum date, ii) the referendum result, and iii) the appointment of Theresa May as the British Prime Minister. Our results show that bank shareholders reacted positively to the announcement of the referendum date and to the election of Theresa May as Prime Minister, whereas their reaction to the referendum outcome was negative. The analysis also demonstrates that the impact of different stages of Brexit on the stock market is more dependent on geographical factors than on firm-specific characteristics. The only exception is bank size, which positively affects bank shareholder choices. Our results have important regulatory and managerial implications: new political risks should be appropriately included into scenario analysis and the ability to assess and manage this risk should be taken into account in strategic planning and risk management.
... The period ranging from David Cameron's referendum announcement to the referendum date may be seen as a period of political uncertainty, relating to the possible change in the government policy (Schiereck, Kiesel & Kolaric, 2016;Krause, Noth & Tonzer, 2016;Smales, 2017;Dibiasi, Abberger, Siegenthaler, & Sturm, 2018). As suggested by Pastor and Veronesi (2012), changes in government policy usually generate uncertainty in the economy and can affect stock prices, thus leading to negative stock returns. ...
... They find those US firms that are more exposed to the UK economy are more affected by this political uncertainty, suggesting exogenously-born events can influence the financial and economic environment of countries. Only a few studies address the impact of the Brexit referendum on stock prices (Schiereck et al., 2016;Ramiah, Huy, Pham, & Moosa, 2017;Tielman & Schiereck, 2017;Oehler, Horn, & Wendt, 2017;Hill, Korczak & Korczak, 2019). Tielman and Schiereck (2017) focus on the logistics' sector and show that the negative effect of Brexit on this sector was strong in all European countries, but particularly so in the UK. ...
... Furthermore, they find that size and market-to-market ratio have a statistically significant positive influence on abnormal stock returns, while diversification and the involvement in road transport contribute to reducing the negative impact on stock prices. Schiereck et al. (2016) focus on the banking sector by comparing Brexit with the Lehman Brothers crisis. Their results show that Brexit was not "another Lehman Brothers moment" for banks because the short-term drop in stock market and the increase in bank CDS spreads after the Lehman crisis were stronger than in the case of Brexit. ...
The paper investigates the market reaction to three different events related to Brexit through an event study analysis, i.e. the announcements of the referendum date (20 February 2016), the referendum result (23 June 2016) and the election of Theresa May as Prime Minister (11 July 2016). We study the impact of these announcements on stock prices of UK companies belonging to export- and import-oriented industries. We also investigate the influence of previous events on stock prices of European companies belonging to the same sectors. Our results show that financial markets did not perceive the announcement of the referendum date and the election of Theresa May as Prime Minister as elements of political uncertainty. However, in the days before the referendum, investors priced it as an uncertain political event. The text analysis conducted on mass media sentiment about Brexit mainly supports the results of our event studies. Stock market performance around the events depends more on industry factors than on firm-specific characteristics, for both UK and EU companies. The only exception is company size, which positively affects investor reaction.
... The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/0307-4358.htm research on its impact on economies and markets (e.g. Schiereck et al., 2016;Nishimura and Sun, 2018), this paper examines the effects of the British referendum on European real economy, by focusing on financial and non-financial (sector) stock indices across EU-28, euro and non-eurozone countries. Britain, the biggest financial center in Europe, decided to proceed to a referendum concerning its membership within the EU, and the effects of this political decision is a research field of great importance. ...
... Hamilton, 1995;Klassen and McLaughlin, 1996;Chenga et al., 1998;Gleason et al., 2005;Asteriou et al., 2013;Cayon et al., 2016) over an estimation period which ranges between 100 and 252 days prior the event day (e.g. MacKinlay, 1997;Samitas and Kenourgios, 2007;Oak and Dalbor, 2009;Schiereck et al., 2016). ...
... In italics, the statistically significant average ARs and CARs Table III. Sector average cumulative abnormal returns and abnormal returns for eurozone members literature showing that political decisions affect stock market returns and increase uncertainty (see Pastor and Veronesi, 2012;Julio and Yook, 2012;Ricci, 2015;Schiereck et al., 2016), that there is an effect on short-term stock returns (Oehler et al., 2017) If jt value j ≥ 1:96, the abnormal returns are statistically significant at five percent confidence level. In italics, the statistically significant average ARs and CARs Table V. ...
Purpose
The purpose of this paper is to assess the reaction of European stock markets after the UK's EU membership referendum (“Brexit”) on June 23, 2016.
Design/methodology/approach
The analysis focuses on asector level by using non-aggregate stock indices across EU-28, the UK and several country subsamples. An event study is performed in order to measure cumulative abnormal returns during the post-referendum announcement period.
Findings
The results indicate an unexpected small number of affected sectors across the country samples. A negative effect is observed in the financial sector across both the EU-28 and eurozone samples, whereas basic materials and health care sectors are influenced positively across the European region. Most of the sectors in the UK display a long-lasting positive effect, while the close trade relationships between the UK and selected European countries seem to partly constitute a driving force of sectors' abnormal stock returns after the referendum.
Practical implications
The results are useful for global investors, traders and portfolio managers in terms of whether short-term gains from investment choices across sectors can be achieved during periods of increased political uncertainty and whether investors distinguished between sectors.
Originality/value
This paper extends the Brexit literature by using, for the first time, European non-aggregate stock indices. It also contributes to the sector-specific contagion studies by identifying which sectors with similar and/or different industrial composition are more prone to political uncertainty caused by the Brexit vote.
... In the second group, articles analysing unexpected outcomes from elections (Goodell & Vähämaa, 2013;Wagner, Zeckhauser, & Ziegler, 2018), referendums (Angosto-Fernández & Ferrández-Serrano, 2020;Schiereck, Kiesel, & Kolaric, 2016) and other political events (He, Nielsson, & Wang, 2017;Liu, Shu, & Wei, 2017;Hillier & Loncan, 2019) are found. The literature regarding uncertain political events presents key findings that can be extended to neighbouring disciplines (Brooks, Patel, & Su, 2003). ...
... The literature regarding uncertain political events presents key findings that can be extended to neighbouring disciplines (Brooks, Patel, & Su, 2003). First, there is a negative relationship between uncertainty and returns (Angosto-Fernández & Ferrández-Serrano, 2020;He et al., 2017;Schiereck et al., 2016). Second, there is a positive relationship between uncertainty and volatility (Goodell & Vähämaa, 2013;Smales, 2016;Chiang, 2019), and finally, there is a high dispersion on returns showing that the effects of uncertainty are not homogeneous among firms or countries (Davies & Studnicka, 2018;Shahzad, Rubbaniy, Lensvelt, & Bhatti, 2019). ...
The aim of the paper is to analyse the impact of the new coronavirus on financial markets. The sample comprises returns from 80 countries, across all regions and incomes for the period known as the first wave. By combining event study methodology and time series analysis of new COVID-19 cases it is found that the negative price effect is widespread but unequal across regions. It is also noted that the distribution of the impact is also uneven with a high concentration in the week after the first local case but especially in the weeks around the pandemic declaration. Finally, it has been shown at different levels how the markets most affected by the crisis are not necessarily the most sensitive to the virus.
... In the second group, articles analysing unexpected outcomes from elections (Goodell & Vähämaa, 2013;Wagner, Zeckhauser, & Ziegler, 2018), referendums (Angosto-Fernández & Ferrández-Serrano, 2020;Schiereck, Kiesel, & Kolaric, 2016) and other political events (He, Nielsson, & Wang, 2017;Liu, Shu, & Wei, 2017;Hillier & Loncan, 2019) are found. The literature regarding uncertain political events presents key findings that can be extended to neighbouring disciplines (Brooks, Patel, & Su, 2003). ...
... The literature regarding uncertain political events presents key findings that can be extended to neighbouring disciplines (Brooks, Patel, & Su, 2003). First, there is a negative relationship between uncertainty and returns (Angosto-Fernández & Ferrández-Serrano, 2020;He et al., 2017;Schiereck et al., 2016). Second, there is a positive relationship between uncertainty and volatility (Goodell & Vähämaa, 2013;Smales, 2016;Chiang, 2019), and finally, there is a high dispersion on returns showing that the effects of uncertainty are not homogeneous among firms or countries (Davies & Studnicka, 2018;Shahzad, Rubbaniy, Lensvelt, & Bhatti, 2019). ...
The aim of the paper is to analyse the impact of the new coronavirus on financial markets. The sample comprises returns from 80 countries, across all regions and incomes for the period known as the first wave. By combining event study methodology and time series analysis of new COVID-19 cases it is found that the negative price effect is widespread but unequal across regions. It is also noted that the distribution of the impact is also uneven with a high concentration in the week after the first local case but especially in the weeks around the pandemic declaration. Finally, it has been shown at different levels how the markets most affected by the crisis are not necessarily the most sensitive to the virus.
... The standard of codes for ethics in investment companies also cautions against the behaviour of manipulating the market for individual gains. The use of repo 105 as off-balance sheet transactions was mainly for the manipulation of the capital market (Schiereck et al., 2016). ...
... The use of repo 105 was not illegal. It was unethical to use it and fail to disclose the transfer of securities to other parties. However, since the repo 105 transactions were only considered complete after the repurchase of the securities, they could not be included in the legal statements (Schiereck et. al., 2016). The auditing firms should, however, communicate every inconsistency to the public. Ernest and Young failed to exercise the duty to the clients by not being loyal and truthful. They also failed to integrity to the capital markets by not reporting the errors in the balance sheets of Lehman Brothers. The other employees of the company had ...
This paper synthesizes the details of the whole accounting misdeed using Repo-105 as an instrument in the Lehman Brothers' case. Roles and responsibilities of internal staffs and vendors have been discussed to access on a high level responsibility and the ownership assessment of this financial fiasco. The paper discusses in detail the notion of Business ethics in the context of financial intermediary using the concept of "Deontological Ethics" as a premise with a relevance to capital market and cost of reputation. The paper suggests improving the management culture and the independence of external bodies in these firms.
... The standard of codes for ethics in investment companies also cautions against the behaviour of manipulating the market for individual gains. The use of repo 105 as off-balance sheet transactions was mainly for the manipulation of the capital market (Schiereck et al., 2016). ...
... The use of repo 105 was not illegal. It was unethical to use it and fail to disclose the transfer of securities to other parties. However, since the repo 105 transactions were only considered complete after the repurchase of the securities, they could not be included in the legal statements (Schiereck et. al., 2016). The auditing firms should, however, communicate every inconsistency to the public. Ernest and Young failed to exercise the duty to the clients by not being loyal and truthful. They also failed to integrity to the capital markets by not reporting the errors in the balance sheets of Lehman Brothers. The other employees of the company had ...
This paper synthesizes the details of the whole accounting misdeed using Repo-105 as an instrument in the Lehman
Brothers’ case. Roles and responsibilities of internal staffs and vendors have been discussed to access on a high level
responsibility and the ownership assessment of this financial fiasco. The paper discusses in detail the notion of
Business ethics in the context of financial intermediary using the concept of “Deontological Ethics” as a premise with
a relevance to capital market and cost of reputation. The paper suggests improving the management culture and the
independence of external bodies in these firms.
... The definition of an event causing policy economic uncertainty is heterogeneous. On examining the recent literature, we can find research based on: country elections (Goodell & Vähämaa, 2013or Wagner, Zeckhauser & Ziegler, 2018, referendums (Acker & Duck, 2015;Angosto-Fernández & Ferrández-Serrano, 2020;or Schiereck, Kiesel & Kolaric, 2016), cross-country disputes (He, Nielsson & Wang, 2017) or political scandals (Liu, Shu & Wei, 2017or Hillier & Loncan, 2019. In this sense, the study by Baker, Bloom & Davies (2016) deserves special attention since they created the Economic Policy Uncertainty (EPU) index whereby the peaks of political uncertainty can be identified. ...
... Up to this point, key facts regarding politics and financial markets have been strongly demonstrated. First, the negative relationship between political uncertainty and returns (He, Nielsson & Wang, 2017;or Schiereck, Kiesel & Kolaric, 2016), which may be because investors reduce their exposure to that market until uncertainty is resolved (Brown, Harlow & Tinic, 1988). ...
This research analyses the reaction of the Finnish, Austrian and Italian markets during the negotiations that led to the far-right’s entry into their governments. Using the event study methodology and by focusing on abnormal returns, different significant reactions are found at an aggregate level. One noteworthy result is the negative abnormal returns associated to bad news for European Union stability. The firm-level analysis confirms this evidence and highlights some determinants of the variability of returns in the cross-section: most notably the role of the business relationship with the EU when explaining the differences between winners and losers.
... The most recent debate revolves around the impact of the Brexit referendum on stock market movements. The Brexit referendum caused stock prices downturn of specific sectors (Schiereck et al., 2016;Ramiah et al., 2017;Tielmann & Schiereck, 2017;Davies & Strudnicka, 2018), as well as certain adjustments on the international markets (Burdekin et al., 2018;Lobão & Santos, 2019) capturing the longterm economic effects of leaving the EU. On the other side, the integration towards the EU generated a positive impact on the stock markets of future member countries (i.e., Dvořák & Podpiera, 2006). ...
... markets of the EU accession countries after the EU enlargement. Schiereck et al. (2016) detected a significant drop in the share prices of the banking sector after the Brexit announcement. Similarly, Ramiah et al. (2017) discovered that the banking sector and travel and leisure sectors experienced strong negative market reactions around Brexit, although some sectors had a positive market response. ...
North Macedonia and Greece resolved the 27-year country name dispute and removed the main hurdle for North Macedonia to start the accession processes towards the EU and NATO. The paper analyzes the stock market movements around several events related to the name issue resolution to uncover whether Macedonian companies experienced stock price adjustments according to the long-term benefits/costs of joining the EU/NATO. The dynamics of the market reactions suggest that the investors reacted systematically to the short-term political uncertainty created around the referendum rather than to the long-term perspectives of the EU/NATO integration. We integrate the knowledge from the literature which explores stock market reactions to EU enlargement/exit and political elections and provide contributions for researchers and policymakers.
... However, the ultimate consequences of Brexit, especially for financial markets, depend on the final agreement, which is still under negotiation. In addition, with respect to Brexit and stock markets, Schiereck et al. (2016) found that the short-run drop in stock prices to the Brexit announcement was more pronounced than to Lehman's bankruptcy, particularly for EU banks. Breinlich et al. (2018) do not find a correlation between the share of EU immigrants in different industries and stock market return by Brexit referendum and suggest stock market reactions to the Brexit referendum were mainly driven by exchange rate movements and investors' expectations of an economic slowdown. ...
... This empirical result is consistent with findings from the REITs market after the 311 Japan earthquake, tsunami, and nuclear crisis of Wu et al. (2018). However, according to the prior study findings, during Brexit event, the financial markets were characterised by large drops in asset prices, increases in market volatility, particularly for EU banks (Ramiah et al., 2017;Schiereck et al., 2016;Hohlmeier & Fahrholz, 2018). Thus, it can be seen that the REITs market operation has more regional characteristics. ...
On June 23, 2016 the Brexit event that tremendously surprised and shocked investors around the world was considered the largest black swan with a political earthquake in 2016, and even spread to the international financial market and real estate market. This study uses the heteroscedasticity biases based on correlation coefficients by Forbes and Rigobon and the GJR-GARCH model to examine the contagion effects of the Brexit event on global REITs markets. The data are collected at the daily interval covering the time period from June 23, 2015 to December 30, 2016. Evidence reveals that no REITs markets suffered from Brexit, suggesting no transmission of Brexit across REITs markets, even the neighbouring markets, is found.
... Hence, foreign banks that utilized the UK license as a European passport to bring services all over the EU, have commanded investment banking business in recent years. Exchange (Schiereck et al., 2016, Arshad et al., 2020, in the financial technology (FinTech) industry (Sohns & Wójcik, 2020), in the intra-European Union youth mobilities (Lulle, et al., 2018) or in the foreign investment (Dhingra et al., 2016). ...
This doctoral thesis consists of three essays on the efficiency of the financial sector, in recent history, within an international context. The main line of research studies the relationship between banking efficiency and external shocks. In the first essay, a systematic review of the literature on the efficiency
of the banking sector is made using Stochastic Frontier Analysis methods. The second and third essays analyse the efficiency of the financial sector in the context of the withdrawal of the United Kingdom from the European Union.
... One of the questions of the case is whether the business is ethically right or wrong? The manipulation of balance sheet using repo105 for falsifying the information to the stakeholders represents the unethical practices that lead to the failure of Lehman Bros. (Schiereck et al., 2016). ...
American companies dominated the corporate scenario in the early 90's, then Asian and European companies rose and challenged the mighty American corporation at global scenario. In the last decade also, we have seen various mergers, acquisitions, and takeovers by companies in a bid to salvage their businesses. Economic theories related to trade like absolute and comparative advantage have further helped companies to manage their global businesses under fierce competition. Corporations have adopted corporate governance models like Anglo Saxon model of corporate governance focused theoretically on accountability and reporting, but the continental European model stressed concentration of economic capital. Also, the chapter will provide an insight as to how stakeholder management approach in light of redefining the businesses makes changes to stay relevant to the market. The time of turbulence is also one of the great opportunities for those who can understand, accept, and exploit the new realities.
... Conversely, the short-term volatility indicates leverage effects and has a negative volatility-return relationship (Harvey 1995;Kim and Singal 1995;Haque and Hassan 2000). Smales (2017) and Schiereck et al. (2016) demonstrate that the implied volatility of financial markets increases with the rise of political uncertainty. Arshad et al. (2020) reveal that the efficiency of the UK stock market worsens during high volatility periods. ...
This paper examines the impact of macroeconomic factors, microstructure factors, uncertainty indexes, the investor sentiment, and global shock factors on the dynamic efficiency of G7 stock markets. We use a non-Bayesian Generalized least squares-based time-varying model by Ito et al. (Appl Econ 46(23):2744–2754, 2014; Appl Econ 48(7):621–635, 2016) and the time-varying adjusted market efficiency method. The results show using the augmented mean group estimator and heterogeneous panel causality method a strong relationship between stock market efficiency and oil prices. In addition, all stock markets became more inefficient during COVID-19 crisis and upward trend in oil prices. Furthermore, by means of the heterogeneous panel causality test, we find evidence of unidirectional from all the considered factors, except for the consumer confidence index variable, to stock market efficiency. Moreover, we show a significant bidirectional causality between the time-varying market efficiency and both interest rates, exchange rates, market volatility, economic policy uncertainty, and the composite leading indicator. The implications of our findings for investors and policymakers are discussed.
... The UK, while still being part of the EU, has tapped into a phase of national political instability connected to Brexit issues creating a lot of concerns for future profitability and security of investments in real estate. People of UK voted to leave EU in 2016 summer, and that started chaos in the political scene with the resignation of Prime Minister David Cameron (Schiereck, Kiesel, & Kolaric, 2016). ...
Investment in real estate is a zoning issue as the real estate market is closely related to economic development and trends in real estate market are considered to be indicators of trends in the whole economy of the country. The goal of this paper is to analyse the main aspects and considerations when investing in real estate, evaluate investment in real estate situation in different EU and non-EU countries and introduce MCDM methods that could be used for selecting a state for investment in real estate. It is identified that when investing in real estate various political, social, economic, environmental and other factors have to be taken into consideration. Analysed examples of EU (Lithuania, Romania, UK) and non-EU (Turkey, China, Russia) countries show different risks and opportunities for investments in real estate. MCDM methods are applicable to evaluate which countries are most attractive for investment in real estate. Described TOPSIS and ARAS methods could be used for assessing states as alternatives when selecting where to invest
... Estudiaron las reacciones de las acciones farmacéuticas a los anuncios oficiales de la OMS y encontraron que, en una primera etapa, hay una caída de los precios causada por el miedo y la sobreinformación. Sin embargo, también hay una segunda etapa de crecimiento inducido por la intervención del gobierno y las oportunidades de inversión.En el segundo grupo, podemos encontrar artículos que analizan los resultados inesperados de las elecciones(Goodell y Vähämaa, 2013 o Wagner et al., 2018, los referendos (Angosto-Fernández y Ferrández-Serrano, 2020 oSchiereck et al., 2016), y otros eventos políticos(He et al., 2017;Liu et al., 2017 o Hillier y Loncan, 2019. ...
One-off or unexpected events cause levels of political and economic uncertainty to rise, generating investor uncertainty, which spills over into financial markets and consequently affects company returns.
The development of quantitative analysis and the proliferation of financial data have made it possible to investigate the effects of uncertainty in markets better than ever before.
Therefore, this dissertation aims to contribute to the study of unique social and political events, such as referendums, elections or even pandemics, by measuring and explaining their stock market impact.
Specifically, we conduct three analyses of abnormal returns in the Spanish, European and global capital markets. To do so, we draw on the event study literature, recovering and updating the method of seemingly unrelated regressions, a simultaneous equations model whose main advantages are that it considers how assets are related to each other, providing more reliable tests, and that it allows for joint hypothesis testing by means of linear restrictions.
In addition, political and social events are characterised by a large dispersion in returns, meaning that they do not affect all stocks equally. From the abnormal returns obtained and using cross-sectional analysis, we try to determine which characteristics may have caused some companies to be more adversely affected than others, thus trying to quantify their exposure to the risk derived from the event.
In short, we statistically analyse the stock market returns following an extreme event to determine their significance and then identify which elements aggravate or diminish the impact. Using the above framework, we present the study of three single events that form the core of this research: chapter 1 is a study of the Spanish stock market after the failed attempt at independence in Catalonia, chapter 2 is an analysis of three European markets after the unexpected arrival of the far-right in their respective governments, and chapter 3 is a global study of the effects of the COVID-19 pandemic.
Our results suggest the existence of negative price effects following the events, directly related to the increase in political and economic uncertainty. Good examples are the results in the Spanish continuous market after the illegal referendum in Catalonia or in the Milan stock market after the formation of the government of La Liga and the 5 Star Movement.
We can also highlight the vastly different reactions to the same event and the
identification of characteristics that partially explain the reasons for these differences. For example, the location of the firm or its level of internationalisation after the Catalan independence attempt, the relationship of the firm with the European Union during the far-right government negotiations, or the level of competitiveness of the country or its income inequality after the outbreak of COVID-19.
Our work contributes to the field of finance with the quantitative analysis of three
extraordinary and highly relevant cases, but we also provide specific economic and
financial factors that can help institutions and professionals to reduce their risk exposure in future events.
... Given the severity of the decision, as well as the unpredictable outcome of the Brexit referendum ex ante, most pre-Brexit analyses predict a decrease in living standards for UK citizens in the medium and long run (Kierzenkowski et al., 2016). What is more, several early post-Brexit studies find that the exit decision already manifested itself in reduced GDP growth, higher inflation, decline in syndicated loans, and a drop in stock prices of both British and EU firms (see, e.g., Schiereck et al., 2016;Born et al., 2017, Breinlich et al., 2018Berg et al., 2019;Radev and Waibel, 2022). At the same time, in the years after the referendum, continental Europe, especially the Baltics and Southeast Europe, has witnessed an exponential growth of its Fintech sector (see., e.g., Euractiv, 2021). ...
This paper provides insights into the drivers of the resilience of the Fintech sector in Emerging Europe by analyzing the performance of 128 Bulgarian Fintech companies in the period 2000-2021. Our results show that larger and better capitalized Fintech companies which outsource their non-core activities and focus on their main competitive strengths tend to have higher operating income and profit. We also find substantial positive real-economy effects as these companies hire actively on the labor market to maintain their growth. The results are primarily driven by the post-Brexit period of 2016-2019. These results have important managerial and policy implications and provide interesting directions for future research.
... The WHO declared the disease to be a pandemic on the 11th of March, when COVID-19 was already spreading exponentially in the U.S. (Centers for Disease Control and Prevention 2021; WHO 2020). Measures to curb the pandemic's dynamic were unprecedented in peace time and stock markets reflected the global grip of the pandemic (e.g., Park et al. 2008;Schiereck et al. 2016). ...
This study analyzes the wealth effects of SEO announcements in the US during the COVID-19 pandemic and its main determinants. We find significantly negative abnormal returns of − 8.6%. This provides persuasive evidence that capital markets reacted particularly negative during this period, reflecting higher degrees of uncertainty. We furthermore find that larger firms experience a better SEO performance and that COVID-19 related biotech & healthcare firms react particularly negative. This effect is more negative the lower the company valuation beforehand.
... Although Brexit had political consequences such as the resignation of the Prime Minister David Cameron and the internal disputes within the main opposition Labor Party, its economic effects were among the most important issues on the UK's agenda. referendum, many economists discussed Brexit from many different aspects such as its effects on the financial markets (Schiereck, Kiesel and Kolaric 2016;Belke, Dubova and Osowoski 2016;Hohlmeier and Fahrholz 2018), regional effects (Dhingra, Machin and Overman 2017) and the investments (Dhingra, Ottaviano, Sampson and Van Reenen 2016a;Welfens and Baier 2018). ...
... Another study from the UN stated that approximately 81% of the global workforce has had their workplaces completely or partially closed (BBC, 2020a) and the worst hit were the emerging markets and developing nations (BBC, 2020b). The prevailing situation creates a need to explore the COVID-19 and subsequent lockdown effect on the Indian stock market, as previous researches have found a significant correlation between stock market performance and major occurrences (Wong & Hooy, 2020), (Tielmann & Schiereck, 2017), (Schiereck, Kiesel, & Kolaric, 2016), (L. Pendell & Cho, 2013), (Pham, Ramiah, & Moosa, 2019). ...
This research examines the impact of the lockdown announcement imposed by the Indian government on the different leading sectors of the economy such as pharmaceuticals, FMCG, Financial services, banking, energy, etc. Event study method has been used to analyze the data. Lockdown announcement day has been considered as the event for our study. We have taken a 40-day event window, i.e., 20 days before and 20 days after the date of the announcement. Secondary data is used in the study and the same is collected from the NSE website. Using MS Excel, we have applied three methods for analysis—mean-adjusted, market-adjusted, and risk-adjusted abnormal return. Auto, Bank, Financial Services, FMCG, IT, Media, Metal, Pharma, Private bank, PSU Bank, Realty, Oil & Gas, and Energy are sectors of NSE that were taken for the study. Our results indicated that most of the sectors performed positively and gained abnormal returns during 21 days after the announcement. It showed that these sectors recovered their position after going down the market index. This shows that investors were confident that the impact was due to the abnormal condition of the market and not due to the fault or fundamental problems of these sectors. Based on the results, investors may decide to hold their position in the stock that has recovered during the period. Also, investors can diversify their portfolio in those sectors to which abnormal return was positive besides the COVID-19 impact. This is the first study to analyze the effects of the announcement of lockdown due to COVID-19 on the stock market performance of different sectors using the event study method in the context Indian stock market.
... Bloom et al., 2019;Born et al., 2019;Hassan et al., 2020;Hill, Korczak and Korczak, 2019;McGrattan and Waddle, 2020;Steinberg, 2019;Van Reenen, 2016) and the related impact on banks and financial markets (e.g. Berg et al., 2019;Davies and Studnicka, 2018;Hudson, Urquhart and Zhang, 2020;Schiereck, Kiesel and Kolaric, 2016). ...
Given uncertainty in policy, particularly around Brexit, how do private equity (PE) firms investing in the UK behave? Analysing their response is vital for understanding the impact on investment per se and designing policy that limits uncertainty. Building on the recent work of Mike Wright and co‐authors, we explore the effect of uncertainty measures on UK PE activity and the channels that transmit uncertainty to the PE market. After developing hypotheses that link the ‘PE activity and uncertainty’ relation via a real options, interim risk or moral hazard channel, we employ a novel dataset on PE targets and non‐targets over the 2010–2019 period. We find that uncertainty, especially new measures closely aligned to Brexit, have negatively affected PE activity in the UK. Moreover, the transmission of such uncertainty occurs primarily through the real options channel and through greater uncertainty arising from prolonged interim periods of PE deals (i.e. the interim risk channel). Our results imply that the present and ongoing uncertainty in Brexit policy will continue to depress PE activity and by extension, investment and growth in the UK. Policymakers are urged to resolve such uncertainties.
... Referring to our setting, most capital market participants did not anticipate the outcome of the Brexit-referendum. Hence, the announcement of the votum results caused an immediate and massive turmoil in financial markets (Schiereck et al. 2016). During that time investors were striving for existing first-hand Brexitrelated risk disclosure of the firms. ...
This paper examines how board gender diversity affects corporate risk disclosure. We exploit an exogenous shock on firms’ risk environment created by the United Kingdom’s vote to leave the European Union (Brexit) and analyze related risk disclosure in annual reports of public firms in the UK. Using this unique setting, we mitigate concerns about omitted variables in concurrent studies. The findings suggest that board gender diversity is positively related to corporate risk disclosure. However, our results also indicate that the proportion of female directors needs to reach a critical mass to impact the risk disclosure decision. Moreover, we find lower bid–ask spreads immediately after the referendum date for those firms that disclosed Brexit-related risks in their annual reports prior to the vote. Collectively, our results are consistent with board gender diversity promoting the disclosure of decision-relevant information through improved board group dynamics.
... This research also consider one behavioral finance interpretation which is over reaction led to panic selling caused by Using the daily return of 311 listed firms in DSE and daily market return (DSEX) of 250 days of estimation period from January 02, 2019 to February 20, 2020, this study applies the event study method (ESM) (Brown and Warner, 1980;Fama et al., 1969) to estimate the announcement effect of disease outbreaks (COVID19) in the stock market of Bangladesh by capturing abnormal changes of stock return after the first case of COVID19 has been identified in Bangladesh on March 08, 2020. This study followed the prominent study of Chen et al. (2007), Schiereck et al. (2016), and Wang et al. (2013) and the contemporary study of Heyden and Heyden (2020) while constructing the methodology and analyzing the findings of the study. Furthermore, the study extends the analysis by segregating the total firms into financial Vs. ...
Research findings on Capital markets’ reaction to infectious diseases in emerging market contexts are not comprehensible. Therefore, using the daily individual stock’s return of 311 listed firms during an estimation period of 250 trading days; this research applies an Event Study Methodology to define the immediate stock market response to Covid19’s arrival in Bangladesh. Mean Return Model, Market Return Model, and Market model are applied to determine the Average Abnormal Returns and Cumulative Average Abnormal Returns for short term event window. Both Parametric and non-parametric tests of the significance of returns around the several event windows suggest that, despite the perceived weak market efficiency, the local stock market shows unprecedented efficient market reaction to the announcement. The significant statistical difference of CAAR between industry segments in both pre and post-event windows signifies that the negative impact of the announcement was identical for all industry segments. Behavioral overreaction induced Panic selling and herding effect has also been observed among investors due to the announcement. Findings from the study will be useful for investors and financial analysts in accessing the unpredictable systematic risk in portfolio diversification while facilitating policymakers to construct contingency strategy.
... This research also consider one behavioral finance interpretation which is over reaction led to panic selling caused by Using the daily return of 311 listed firms in DSE and daily market return (DSEX) of 250 days of estimation period from January 02, 2019 to February 20, 2020, this study applies the event study method (ESM) (Brown and Warner, 1980;Fama et al., 1969) to estimate the announcement effect of disease outbreaks (COVID19) in the stock market of Bangladesh by capturing abnormal changes of stock return after the first case of COVID19 has been identified in Bangladesh on March 08, 2020. This study followed the prominent study of Chen et al. (2007), Schiereck et al. (2016), and Wang et al. (2013) and the contemporary study of Heyden and Heyden (2020) while constructing the methodology and analyzing the findings of the study. Furthermore, the study extends the analysis by segregating the total firms into financial Vs. ...
Research findings on Capital markets’ reaction to infectious diseases in emerging market contexts are not comprehensible. Therefore, using the daily individual stock’s return of 311 listed firms during an estimation period of 250 trading days; this research applies an Event Study Methodology to define the immediate stock market response to Covid19’s arrival in Bangladesh. Mean Return Model, Market Return Model, and Market model are applied to determine the Average Abnormal Returns and Cumulative Average Abnormal Returns for short term event window. Both Parametric and non-parametric tests of the significance of returns around the several event windows suggest that, despite the perceived weak market efficiency, the local stock market shows unprecedented efficient market reaction to the announcement. The significant statistical difference of CAAR between industry segments in both pre and post-event windows signifies that the negative impact of the announcement was identical for all industry segments. Behavioral
overreaction induced Panic selling and herding effect has also been observed among investors due to the announcement. Findings from the study will be useful for investors and financial analysts in accessing the unpredictable systematic risk in portfolio diversification while facilitating policymakers to construct contingency strategy.
... In addition, Hill et al. (2019) show that financial and consumer-facing sectors had the highest exposure to the uncertainty surrounding the Brexit vote. Schiereck et al. (2016) analyze stock and credit default swap (CDS) market reactions in the UK and the EU around the time of the Brexit vote (CDS indicate the price of default risk in financial markets). They find that a short-run drop in stock prices to the referendum announcement was more pronounced than to the bankruptcy of the Lehman Brothers, particularly for EU banks; although, an increase in CDS spreads is relatively small, compared to Lehman bankruptcy. ...
This paper analyzes recent developments in the British and European government bond markets with reference to the United Kingdom´s decision to leave the European Union. The two main goals of the study are, firstly, to examine whether the Brexit referendum result has affected the risk premium and, secondly, whether there are any changes in risk pricing following the referendum. The paper finds a significant impact of the Brexit referendum on the risk premium in selected economies. Furthermore, the results suggest that there is a considerable change in risk pricing after the announcement of the referendum result. Credit default risk and the risk aversion play a much important role in the post-referendum period than they did prior to the vote, particularly in the United Kingdom.
... Research identifies a strong link between stock market returns and key events such as political events (Podgorski, 2020;Wong and Hooy, 2020); geopolitical events (Schiereck et al., 2016;Tielmann and Schiereck, 2017); terrorist incidents (Bash and Alsaifi, 2019); environmental events (Pham et al., 2019); and disease outbreaks such as animal diseases, Ebola, SARS, and COVID-19 (Park et al. 2008;Pendell and Cho, 2013;Chen et al., 2009;Chen et al., 2007;Ichev and Marinč, 2018;Al-Awadhi et al., 2020). ...
We study the effect of the first registered case of COVID-19 on stock market returns using event study analysis. Mean-adjusted returns and market model methods are used to estimate cumulative abnormal returns for 30 countries. The results show that stock market returns experience a downwards trend as well as significant negative returns following the COVID-19 outbreak.Keywords: COVID-19, event study, index returns; pandemicsJEL Classification: G14DOI: https://doi.org/10.32479/ijefi.9941
... Tielmann and Schiereck (2017) found an overall negative effect of the Brexit referendum on the value of European logistics companies. Schiereck et al. (2016) established that the reaction of banks' stock prices to the Brexit announcement was more severe than the response to Lehman's bankruptcy, while the reaction of the credit default swap market was far more subdued. Jackowicz et al. (2017) indicate the absence of a fundamental proof of a reaction on the Warsaw Stock Exchange (WSE). ...
The main aim of this article is to assess the influence of change in Prime Minister on Polish stock market. Prime Minister Szydło resigned shortly after she survived the second vote of no confidence on December 8, 2017, and was replaced by Morawiecki, the Vice-Prime Minister and Minister of Finance, and a former CEO of a large bank.¹ Considering the aforementioned context, this study tests four hypotheses regarding the market reaction in terms of companies’ shareholder structure. An event study analysis was performed to calculate cumulative abnormal returns, and regression models were estimated to test the hypotheses. The author finds significant negative price changes only for state-owned enterprises (SOEs) both directly and indirectly controlled by the government. I assume that this reaction in the case of SOEs was caused by the uncertainty related to the likely changes in the management.
... The GBP depreciated immediately by more than 10% against the U.S. dollar (USD) and the euro (EUR), and it still has not recovered to its pre-Brexit levels. Both the FTSE 100 and the FTSE 250 stock market indices fell sharply (by 1-7%), while the short-term drop in share prices of financial institutions was more severe following the Brexit announcement than Lehman Brothers' bankruptcy filing, especially for the E.U. banks (Schiereck et al. 2016). Ben Sita (2017) finds that investors rebalanced their portfolios on June 24, 2016 and moved to acquire large stocks. ...
In order to gauge foreign exchange market expectations prior to and after the Brexit vote in June, 2016, this paper examines European options written on the GBP/USD and GBP/EUR exchange rates in 2016. First, the parameter estimates from a non-parametric option pricing model with a homogeneity hint show that the Brexit announcement was to a certain extent expected because the implicit probability density functions were negatively skewed in January–February, 2016 and April–June, 2016. This effect was more pronounced for the GBP/USD exchange rates, indicating an increased pessimism of the U.S. currency traders relative to their European counterparts. Entropic risk measures based on skewness premia of deepest out-of-the-money options confirm the findings from implicit distributions. Moreover, these new risk measures are found to statistically significantly predict foreign exchange market volatility at daily to monthly time horizons.
... Both studies look into the abnormal returns for the various firms and look into the short and long term effects. Abnormal Returns are used by multiple other authors when investigating the impact of Brexit [4,12,13,15]. ...
On 23rd June 2016, 51.9% of British voters voted to leave the European Union, triggering a process and events that have led to the United Kingdom leaving the EU, an event that has become known as 'Brexit'. In this piece of research, we investigate the effects of this entire process on the currency markets, specifically the GBP/EUR exchange rate. Financial markets are known to be sensitive to news articles and media, and the aim of this research is to evaluate the magnitude of impact of relevant events, as well as whether the impact was positive or negative for the GBP.
... The financial crises triggered by financial models started when the rating agencies downgrade majority of the structured finance instruments to being useless or of no value. The subprime mortgage market in the United States that developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008 led to the largest bankruptcy ever recorded by then (Schiereck, Kiesel and Kolaric, 2016). Given the latter crises, it is evident that lack of model risk management could have contributed significantly. ...
The purpose of this study is to assess model risk with respect to parameter estimation for a simple binary logistic regression model applied as a predictive model. The assessment is done by comparing the effectiveness of eleven different parameter estimation methods. The results from the historical credit dataset of a certain financial institution confirmed that using several optimization methods to address parameter estimation risk for predictive models is substantial. This is the case, especially when there exists a numerical optimization method that estimates the optimum parameters and minimizes the cost function among alternative methods. Our study only considers a univariate predictor with a static sample size of cases. This research work contributes to the literature by presenting different parameter estimation methods for predicting the probability of default through binary logistic regression model and determining optimum parameters that minimize the objective model’s cost function. The Mini-Batch Gradient Descent method is revealed to be the better parameter estimator.
... Previous studies conclude that the reactions to the Brexit events generated short-term negative abnormal returns in stock markets. For example, Schiereck et al. (2016) compared the impact of Brexit and of the Lehman Brothers collapse on banking stocks. They found that the negative impact of the Brexit announcement was much stronger, particularly for the EU banking sector. ...
Using four Brexit-related announcements as a source of exogenous information shocks, we investigate the semi-strong form of efficiency in seven major European stock markets. Our results suggest that only the announcement of the Brexit referendum result produced statistically significant negative cumulative abnormal returns in the markets of the sample. However, with the exception of the Irish stock market, the effects ceased to be significant in a period of five trading sessions after the event. We also document an increase in trading activity, though statistically insignificant, in the day of the referendum and in the following days. Overall, our results are in line with the semi-strong form of market efficiency.
... With the outbreak of the global financial crisis, the central banks, along with commercial banks, continued to work to mitigate the effects on the banking and financial sector (Schiereck, 2016). During the crisis, having a conservative policy designed by the National Bank of Serbia, the banking sector was sufficiently resistant to handle all negative and crisis-induced consequences. ...
As our country has been opening itself more to foreign capital, foreign banks have brought their paradigm of efficient business methods in the banking system of the Republic of Serbia. This paper shows the seven-year analysis of the time series based on the ratio indicators of liquidity and profitability of the 10 largest banks doing business in the Republic of Serbia for the period between 2010 and 2017. In this research we used data from quarterly reports issued by the National Bank of Serbia and the selection criteria for banks was the amount of total net assets. As the percentage of participating banks' share is 77.1% of the total net assets of all banks operating in the Republic of Serbia, the values obtained approximate the performance of the entire banking system to a very good extent. The objective of this paper is to interpret these indicators in the aim of supporting the decision-making process concerning the credit-based and other finance-based relationships with clients so as to demonstrate whether monitoring of monetary authorities needs to be raised to a higher level, assuming that in the observed period the banking system of the Republic of Serbia was stable.
This study analyzes how financial sectors in 43 countries responded to the collapse of Silicon Valley Bank (SVB). The findings reveal significant adverse responses in Africa, Europe, and North America surrounding the event. In contrast, the equity market effects of SVB on financial sectors in the Asia–Pacific region (except Australia and Japan), Latin America, the Gulf Corporation Council, and Israel were limited. Additional tests reveal that financial sectors with high exchange rate sensitivity (local currency vis-a-vis US dollar) and those with strong equity correlations to the US financial sector experienced higher losses. Finally, greater investor attention to the SVB failure, as measured by Google Search Volume, is a significant determinant of pre-event market responses.
Open banking was heralded as the key to promoting competition in UK retail banking markets. After a slow start the post-pandemic uptake of open banking tools suggested that a second financial services revolution was indeed underway. Yet by 2024 there were also clear signs that the so-called silent revolution had failed. The aim of this paper is to explain why. Using Culpepper’s (2010) concept of ‘noisy politics’ we argue that against the background of disillusionment with incumbent banks a more incisive, pro-reform statecraft emerged during the design of open banking (2015-18); under these conditions incumbent bank power waned. However, the return to ‘quiet politics’ – compounded by the political uncertainty surrounding Brexit and the delegation of authority to technocratic institutions – allowed incumbent banks to slow the implementation process (2018-23) and reorient their strategy towards acquisitions and partnerships with technologically agile fintech firms. In so doing bank power reasserted itself, stymieing the progress of open banking reform.
This paper analyses the impact of Brexit on the European banking system and economy. Using an event-study and difference-in-differences analysis around the Referendum date, we find that the most affected banks are not only in the UK, but also in Southern Europe. Larger UK banks experience a lower reduction in stock returns right after the Leave vote, indicating the presence of a too-big-to-fail problem in the UK banking sector. We also identify trading activity as a major factor determining the negative effect of Brexit. Regarding the real economy effects, we find that trading banks reduce lending by more, compared to non-trading banks. Our results are robust to different specifications of the control and treatment group and have major implications for policymakers.
This paper evaluates the impact of Brexit-related uncertainty on the economies of the UK, EU, and the US. We propose a measure of Brexit uncertainty that has not been employed before in the literature. We first construct a binary variable by selecting Brexit-related events. We subsequently employ the Qual VAR model of Dueker [2005. “Dynamic Forecasts of Qualitative Variables: A Qual VAR Model of US Recessions.” Journal of Business & Economic Statistics 23: 96–104] to transform this variable to a continuous latent variable that captures uncertainty on important economic and financial variables. Next, this latent variable enters a structural Factor-Augmented Vector AutoRegression model combined with 452 macro and financial variables for the sample countries. Overall, our results indicate that the prolonged period of uncertainty, had a positive effect on the economies of major EU countries and negative effects for the UK economy. Additionally, the UK is the most important net sender of uncertainty spillovers in the EU, while Germany and France are among the most important net receivers of uncertainty shocks.
With the growing concerns about increasing protectionism, several empirical studies have investigated the effects of protection. While these studies presented interesting and important findings, few of them have discussed their frameworks and results in a comprehensive manner. This paper reviews these recent studies. We first show that they mainly employ either quantitative trade models or difference-in-differences design to investigate protectionism. We then discuss the strengths and limitations of these approaches. Finally, we consider possible directions for future research.
In this paper, we propose a multivariate procedure based on multidimensional visibility graphs to detect changes in the market volatility of UK financial indices, considered both before and after Brexit main events. We produce a graph-theoretical representation of volatility time series derived from equity indexes, government rates and currencies to investigate the behavior of the aggregate market volatility through the use of global centrality measures. By employing a stylized agent-based model, we show that the proposed approach is able to discriminate between periods of high and low volatility, both in the temporal dimension and cross-sectionally among multiple time series. We aim at recognizing whether external news related to the Brexit process could induce significant ‘after-shocks’ (and also ‘pre-shocks’) in the system, by producing dynamic relaxation in the values of centrality measures, in line with the cascade effects described by the Omori earthquake law. In particular, high volatility cascades dissipate into the market via power-law relaxation. When compared with other categories of events, such as Bank of England monetary policy announcements, we observe significant market inefficiency in processing Brexit related news. We also find that strong market surprise related to specific Brexit news or a correct discount of some Brexit announcements can produce an inverse Omori law exhibiting convex relaxation.
Transition economics was and still is a topic mostly associated with the post-communist countries in Central and Eastern Europe (CEE). The cause of its emergence as a theory was not purely economic-the spearhead was politics-leading to the collapse of the Eastern Block, to be followed by the disintegration of three federal states: Soviet Union, Yugoslavia, and Czechoslovakia, with many civil wars and ethnic conflicts. The experience proved a relaxation to the Western liberal developed democracies as it strengthened the belief of their superior model which the transition economies want to embrace. First of all, the transition provided a new opportunity for interaction between European East and West. On the eve of its 30 th anniversary, with more than half of these countries experiencing "the end of transition" and joining the European Union (EU) while the rest considered not yet meeting the "standards", another transition is on the way, and this one not going into but coming out from the EU, Brexit respectively. Just like in former communist countries, it too, originated from politics, namely the results of 23.06.2016 referendum results that decided for the withdrawal of the United Kingdom (UK) from the EU, a move that is about to force considerable changes in the economy, already labelled as "transition." Although an intensive phase of research and debate is underway, the aim of this paper is to explore the implications of Brexit in terms of its international economics and contribute to a more general theory of transition economics which so far has been reserved for, and as a reference to, post-communist countries in CEE.
We examine how the Brexit announcement influenced the long-run market performance of British and European listed firms. Using daily data and a sample composed of 3,015 European listed firms (805 UK and 2,210 non-UK), we find that, over a 12-month horizon, the Brexit announcement affected negatively the long-run market performance of UK firms (regardless of their business activities) and European non-British (non-UK hereafter) firms that conduct most of their business activities within the British area. We also provide evidence that, after the Brexit announcement, analysts’ earnings forecasts and the realized accounting decreased and the return volatility increased for UK firms. These new evidences in the literature show definitively that the Brexit announcement was harmful for the long-run financial and operational performance of firms involved in British businesses.
We examined the perceived risk of Brexit referendum (BR) in the United Kingdom (UK) securitization market, using 1,021 securitized bonds issued between 2011 and 2018. We find an unexpected negative relationship between the BR outcome and the initial yield spreads of asset-backed securities (ABS), even after accounting for the downward-adjusted credit ratings in the post-BR period. We do not observe this effect on mortgage-backed securities (MBS). Our findings imply that investors diversified into ABS bonds under uncertainty in the post-BR period.
This articles examines small and medium enterprises’ (SMEs) expectations of access to debt finance in times of uncertainty. In particular, we studied whether relationship lending affects British SMEs’ concerns about future access to debt finance after the UK referendum on European Union membership (the so-called Brexit referendum). By using a unique survey, we found that relationship lending significantly reduces SMEs’ expectations of being financially constrained, although the same does not hold for firms engaging in product innovation. Our results are robust after controlling for accounting information disclosure and for the relationship between the expectation of access to debt finance, the prospect of growth, and changes in business strategies.
This paper studies the impact of the United Kingdom's June 2016 referendum to withdraw from European Union membership (“Brexit”) on foreign exchange (FX) exposures. We collect weekly data from 26 FTSE100, 10 IBEX35, and 17 DAX30 nonfinancial multinational companies before and after the referendum. The referendum is shown to have had a positive and significant impact on the returns of the FTSE100 firms. Following the Brexit vote, firm-level FX exposures increased significantly (in absolute terms) for the 26 FTSE100 firms included in this study; however, this was not the case with the IBEX and DAX firms. On the other hand, the Brexit vote led to a reduction in exchange rate exposure at the market level. FX exposures in all three markets are reduced in absolute terms. Asymmetric specification models detect more German firms with significant FX exposures. After accounting for cross-sectional dependence in the residuals of firms within the same country, the majority of our findings are robust.
The Brexit referendum may result in new border controls and a separation of Great Britain from the EU and Continental Europe. These consequences will impede the import and export of goods and can therefore have a strong effect on the valuation of logistic companies. We employ event study methodology and regression analysis, examining 107 logistic companies from continental EU countries and Great Britain. While the results indicate an overall negative value effect, UK based companies have a significantly poorer performance than logistic companies from Continental Europe. Companies that focus on the road transport as well as diversified firms are less affected.
We analyze the reactions of stock returns and the spreads of credit default swaps (CDS) of banks from Europe and the USA to four major regulatory reforms in the aftermath of the subprime crisis, employing an event study analysis. Contrary to public perception, we find that financial markets indeed reacted to the structural reforms enacted at the national level. The reforms succeeded in reducing bail-out expectations relative to the post-bail-out period, especially for systemic banks. The strongest effects were found for the Dodd-Frank Act and in particular for the Volcker rule. Bank profitability was affected in all countries, showing up in lower equity returns.
We test the market integration and efficiency of credit default swap (CDS) and equity markets by examining the CDS spreads of 538 US and European firms around unanticipated and sudden credit events (CEs) from 2010 to 2013. We find evidence that stock markets react prior to CDS markets, anticipating CEs to a certain extent. In particular, we find that equity returns during the two days prior to a CE have a highly significant influence on the observed CDS spread change on the day of the CE, indicating that both markets are not fully integrated yet. In addition, we find evidence that CDS spread changes display continuation patterns following positive CEs and reversal patterns following negative CEs. These patterns are in line with the Uncertain Information Hypothesis, suggesting that CDS markets are efficient, albeit lagging equity markets to a certain extent.
In this paper a method of estimating the parameters of a set of regression equations is reported which involves application of Aitken's generalized least-squares [1] to the whole system of equations. Under conditions generally encountered in practice, it is found that the regression coefficient estimators so obtained are at least asymptotically more efficient than those obtained by an equation-by-equation application of least squares. This gain in efficiency can be quite large if “independent” variables in different equations are not highly correlated and if disturbance terms in different equations are highly correlated. Further, tests of the hypothesis that all regression equation coefficient vectors are equal, based on “micro” and “macro” data, are described. If this hypothesis is accepted, there will be no aggregation bias. Finally, the estimation procedure and the “micro-test” for aggregation bias are applied in the analysis of annual investment data, 1935–1954, for two firms.
We investigate the behavior of stock market indices across 33 countries around political election dates during the sample period 1974–1995. We find a positive abnormal return during the two-week period prior to the election week. The positive reaction of the stock market to elections is shown to be a function of a country’s degree of political, economic and press freedom, and a function of the election timing and the success of the incumbent in being re-elected. In particular, we find strong positive abnormal returns leading up to the elections (i) in less free countries won by the opposition, and (ii) called early and lost by the incumbent government. These results are consistent with the uncertain information hypothesis (UIH) of Brown et al. (Brown, K.C., Harlow, W.V., Tinic, S.M., 1988. Journal of Financial Economics 22, 355–385) and the model of election behavior of Harrington (Harrington, J.E., 1993. The American Economic Review 83, 27–42).
We document the ability of the credit default swap (CDS) market to anticipate favorable as well as unfavorable credit rating change (RC) announcements based on more extensive samples of credit rating events and CDS spreads than previous studies. We obtain four new results. In contrast to prior published studies, we find that corporate RC upgrades do have a significant impact on CDS spreads even though they are still not as well anticipated as downgrades. Second, CreditWatch (CW) and Outlook (OL) announcements, after controlling for prior credit rating events, lead to significant CARs at the time positive CW and OL credit rating events are announced. Third, we extend prior results by showing that changes in CDS spreads for non-investment-grade credits contain information useful for estimating the probability of negative credit rating events. Fourth, we find that the CDS spread impact of upgrades but not downgrades is magnified during recessions and that upgrades and downgrades also differ as to the impact of simultaneous CW/OL announcements, investment-grade/speculative-grade crossovers, current credit rating, market volatility, and industry effects.
We document important interactions between tax incentives and corporate policies using a “quasi natural experiment” provided by a surprise announcement that imposed corporate taxes on a group of Canadian publicly-traded firms. The announcement caused a dramatic decrease in value although prospective tax shields partially offset the losses, adding 4.6% to firm value. In response to changing tax incentives, firms subsequently adjusted their corporate policies. They increased leverage to gain interest tax shields and reversed changes in other policies that had been made to capitalize on tax benefits. The evidence supports the view that taxes are important for corporate decision making.
Brexit is a Lehman moment for European banks
- Bloomberg
Bloomberg (2016b). Brexit is a Lehman moment for European banks. July 4, 2016, http://www.bloomberg.com/view/articles/2016-07-04/brexit-is-a-lehmanmoment-foreuropean-banks.
Bookies place about 90% chance on brexit rejection, odds show
Bloomberg (2016a). Bookies place about 90% chance on brexit rejection, odds show June 23, 2016, http://www.bloomberg.com/news/articles/2016-06-23/
bookies-place-about-90-chance-on-brexit-rejection-odds-show.
The asset-pricing implications of government economic policy uncertainty
- J Brogaard
- A Detzel
Brogaard, J., Detzel, A., 2015. The asset-pricing implications of government economic policy uncertainty. Manage. Sci. 61 (1), 3-18. doi: 10.1287/mnsc.2014.
2044.
Uncertainty about government policy and stock prices
- L Pástor
- P Veronesi
Pástor, L., Veronesi, P., 2012. Uncertainty about government policy and stock prices. J. Finance 67 (4), 1219-1264. doi: 10.1111/j.1540-6261.2012.01746.x.