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.
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.
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.
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.
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.
