Brexit did not just shake Britain - it sent financial shockwaves across Europe

Analysing more than two decades of stock market data across the EU, Surrey researchers found that Brexit-related events significantly increased volatility spillovers between European markets. Political announcements, negotiations and leadership changes during the Brexit process repeatedly triggered financial reactions that spread across the EU and markets.  

The team argue that rather than being a single economic shock, Brexit functioned as a prolonged sequence of uncertainty. Each political milestone, from the referendum result to parliamentary votes and trade negotiations, altered investor expectations and sent signals through financial markets across Europe. 

The analysis shows that large financial markets tend to transmit volatility to smaller ones. France emerged as the most persistent transmitter of volatility across the EU during the Brexit period, while the UK acted as a major transmitter during the early stages of negotiations. Smaller markets, including Ireland, Portugal and Spain were among those most affected by the turbulence.  

To understand how these shocks travelled through the system, the Surrey team examined daily market data from EU countries between 2000 and 2021. They combined advanced volatility modelling with a new “Brexit intensity” index that tracked around 500 political and economic events during the Brexit process. Each event was weighted based on how strongly financial markets reacted, using indicators including stock returns, exchange rate movements and market volatility measures.  

The findings also found that Brexit weakened financial integration within Europe. Following the 2016 referendum, the level of volatility transmission between EU markets dropped sharply, suggesting that markets began reacting more independently as political uncertainty grew. 

Dr Pappas added: 

“Financial markets are closely linked across borders. When uncertainty rises in one country it rarely stays there. By understanding how these shocks travel we can better anticipate the risks and strengthen financial stability.” 

[ENDS] 

• Dr Vasileios Pappas is available for interview. Please contact: mediarelations@surrey.ac.uk to arrange.  
• The full study has been published in the International Journal of Finance & Economics.