Brexit Attention, Cultural Differences and Stock Returns

Abstract: Around the news of Brexit, this paper studies the relationship between investor attention and the cross-sectional stock returns in four major stock markets in Europe - UK, Germany, France and Sweden. A negative relationship is found between the investor attention on Brexit and the aggregate stock market returns on average across countries, with the exception of Sweden. When google search volume (a proxy for investor attention) is higher(lower), the stock market return tends to be lower (higher). Next, in response to the market's speculation that "which European financial center would win at London's expense", I further analyze whether the cultural differences (represented by Hofstede's six dimensions of national culture) across above four countries have an impact on the attention-return relationship individually. I find that UK's high individualism level and France's high uncertainty avoidance provide explanations for the significant negative attention-return relationships for the two countries. This study tests and provides evidence for the important roles of investor attention and culture differences in the financial market.