DP14253 The Global Impact of Brexit Uncertainty

Author(s): Tarek Alexander Hassan, Stephan Hollander, Ahmed Tahoun, Laurence van Lent
Publication Date: December 2019
Date Revised: March 2021
Keyword(s): Brexit, cross-country effects, Machine Learning, sentiment, uncertainty
JEL(s): D8, E22, E24, E32, E6, F0, G18, G32, G38, H32
Programme Areas: Financial Economics, International Macroeconomics and Finance, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14253

We propose a text-based method for measuring and analyzing the international propagation of uncertainty shocks at the firm level. We apply this method to estimate the impact of Brexit-related uncertainty and find widespread reverberations on listed firms in 81 countries. International firms most exposed to Brexit uncertainty not only significantly lost market value but also reduced hiring and investments. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expected negative direct effects from Brexit (the first moment). Most prominently, firms expected difficulties from regulatory divergence, reduced labor mobility, and limited trade access.