Research Seminar: Pitor Korczak, University of Bristol

Abstract: This paper analyzes the link between stock returns of U.K. firms and changes in the probability of the Leave vote implied by bookmakers’ odds in the run-up to the Brexit referendum. The aim of the study is to provide the first evidence oncross-sectional determinants of the economic policy uncertainty exposure of individual companies. On average, an increase (a decrease) in the probability of the Leave vote, interpreted as an increase (a decrease) in policy uncertainty, led to a drop (an increase) in stock prices. Larger and faster-growing firms were more affected while foreign sales and foreign assets had a moderating effect. The effect of foreign sales and assets went beyond the pure currency translation effect and was consistent with international activities acting as a diversification mechanism of domestic risks.