Open Access
Article
SciPap-1829
The Political Uncertainties of the United Kingdom-2022 and Stock Market Reactions: An Event Study Analysis for LSE and Other Major European Stock Markets
1 Department of Professional Studies, CHRIST (Deemed to be University), School of Commerce, Finance and Accountancy, Bangalore 560029, India
2 Department of Management Studies, CHRIST (Deemed to be University), School of Business and Management., Bangalore, India. 560029, India
3 Department of Professional Studies, CHRIST (Deemed to be University), School of Commerce, Finance and Accountancy, Bangalore Urban 560029, India
4 Department of Professional Studies, CHRIST (Deemed to be University), School of Commerce, Finance and Accountancy, Bangalore Urban 560029, India
* Authors to whom correspondence should be addressed.
Abstract: The study aims to examine the impact of three events related to the UK political uncertainties in 2022 on the constituent stocks of the FTSE 100, the benchmark index of the London Stock Exchange (LSE). In addition, the study also investigates the impact of the UK political crisis events on the stock markets of the other major European countries. The market model of the event study methodology was employed to examine the impact of two prime ministerial resignations and one PM appointment event on the selected stock markets. The daily closing price data of the FTSE 100 index, its constituent stocks and the benchmark indices of 14 other major European stock markets were considered as per the event window constructed in the study. The results confirm that the resignation announcement of Boris Johnson and Lizz Truss had positive abnormal returns on the day of the announcement. Subsequently, the announcement of Rishi Sunak as the PM of the UK had a stronger abnormal return on the announcement day. Further, the sector-wise impact analysis confirmed that Financials, materials, Energy, industrial, and real estate sectoral stocks have reacted with positive abnormal returns. Also, when verifying the impact on other major indices in European markets, it is noticed that only for the resignation announcement of Boris Johnson were there positive abnormal returns in benchmark indices of Italy, Netherlands, and Norway. The study confirms that political uncertainties like the prime minister's resignation bring short-run market inefficiency and provide opportunities for abnormal returns. The year 2022 has been one of the extremely uproarious in contemporary British politics, caused by severe political crises and uncertainties. The findings of the study offer some significant implications for the market participants such as traders, investors, portfolio managers and analysts. The findings will provide insights for them to devise trading strategies and risk management and to make investing decisions such that the portfolio of the investors is resilient to such uncertain political events. The study provides evidence of the impacts of one of the most recent political uncertainty events on the stock markets of the United Kingdom. The study identified the three most recent significant political resignation and appointment events that comprehensively capture the period of 2022 political crises in the UK.
Keywords: Political Uncertainties, Political Resignations, Political Appointments, Event Study, Stock Market Indices, Market Reactions.
JEL classification: G14 - Information and Market Efficiency • Event Studies • Insider Trading, G15 - International Financial Markets, G40 - General
Received: 16 November 2023 / Revised: 9 April 2024 / Accepted: 15 April 2024 / Published: 13 May 2024
