Record Details

Brexit Announcement: A Test of Market Efficiency

Journal of Applied Business and Economics

View Archive Info
 
 
Field Value
 
Title Brexit Announcement: A Test of Market Efficiency
 
Creator Bacon, Frank W.
Cannon, Christina C.
 
Description This study tests market efficiency theory by examining the effect of the Brexit announcement on the risk adjusted stock price returns of a sample of firms with strong economic ties to the EU using the standard event study methodology in the finance literature. How did the market react to UK leaving the European Union? We hypothesize that the June 24, 2016 Brexit announcement would negatively affect the risk adjusted returns of the sample of firms analyzed. The purpose of this study is to test market efficiency by analyzing the effect of Brexit’s announcement on the market. Specifically, we analyze the semi-strong market efficiency hypothesis predicting that stock price returns react so fast to all public information that no investor can earn an above normal return by acting on such news. Consistent with market efficiency and behavioral finance theories, we observe an overreaction to the bad news up to 14 days following the announcement followed by a return to equilibrium. Overall, results support semi-strong form market efficiency for the Brexit announcement. Implications of this study suggest that efforts to determine the “right” value of stock are useless since the market is semi-strong form efficient. The “right” price is themarket price that instantly impounds all available and relevant information.
 
Publisher North American Business Press
 
Date 2018-12-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
 
Format application/pdf
 
Identifier https://articlegateway.com/index.php/JABE/article/view/208
10.33423/jabe.v20i8.208
 
Source Journal of Applied Business and Economics; Vol 20 No 8 (2018)
1499-691X
10.33423/jabe.v20i8
 
Language eng
 
Relation https://articlegateway.com/index.php/JABE/article/view/208/178
 
Rights Copyright (c) 2018 Journal of Applied Business and Economics