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Abstracts prior to volume 5(1) have been archived!

Issue 5(1), October 2010 -- Paper Abstracts
Girard  (p. 9-22)
Cooper (p. 23-32)
Kunz-Osborne (p. 33-41)
Coulmas-Law (p.42-46)
Stasio (p. 47-56)
Albert-Valette-Florence (p.57-63)
Zhang-Rauch (p. 64-70)
Alam-Yasin (p. 71-78)
Mattare-Monahan-Shah (p. 79-94)
Nonis-Hudson-Hunt (p. 95-106) 



JOURNAL OF APPLIED BUSINESS AND ECONOMICS


Brexit Announcement: A Test of Market Efficiency


Author(s): Frank W. Bacon, Christina C. Cannon 

Citation: Frank W. Bacon, Christina C. Cannon, (2018) "Brexit Announcement: A Test of Market Efficiency"," Journal of Applied Business and Economics, Vol. 20, Iss.8,  pp. 19-25

Article Type: Research paper

Publisher: North American Business Press

​Abstract:

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 the market price that instantly impounds all available and relevant information.