The Incorporation of New Information on the British Equity Market Surrounding Brexit

Nicoline Lind & Yvette Susan Hakkeling

Student thesis: Master thesis

Abstract

This thesis examines how investors in different industries on the British Equity Market incorporate new information surrounding the Brexit referendum, under the framework of the Efficient Market Hypothesis. By employing an event study on three different events surrounding the Brexit referendum the thesis finds significant abnormal returns and unexpected turnover ratio, using both parametric and non-parametric tests, for only one event: the publication of the referendum outcome. This supports the notion of market inefficiency at a semi-strong form around this event. The investors’ response to this event was continued price movements in opposite directions depending on industry. For the other two events, the official announcement of the referendum and the official triggering of the referendum, evidence of market inefficiency was not found. A cross-sectional analysis provides additional supporting evidence of significant increased trading activity only around the announcement of the results of the referendum. Evidence of the Sequential Information Arrival Hypothesis and lack of consensus among investors offers reasons for the observed market inefficiency along with behavioural explanations such as overreacting to surprising information, Herding behaviour, Cognitive Dissonance Theory and Selective Exposure, and Anchoring.

EducationsMSc in Finance and Investments, (Graduate Programme) Final ThesisMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2018
Number of pages121
SupervisorsSøren Plesner