Brexit and Sweden: An Examination of the Swedish Stock Market's Reaction to Brexit

Abstract: The decision by the United Kingdom (UK) to leave the European Union (EU) is one of the most recognized political events in modern time. In this thesis, we examine the reaction on the Swedish stock market using three different approaches. First, Abnormal Returns are calculated using the market model as theoretical normal returns. Second, sectoral differences in return are analyzed by an ANOVA-test. Third, a cross-sectional regression analysis is used to find plausible explanations for any Abnormal Return. Our findings support that (1) the Swedish stock market reacted negatively on the event date, followed by a quick recovery. We also observe that (2) the return of at least one sector differs from at least one other during the event window. Furthermore, we recognize that (3) companies with UK exposure were affected more than their Swedish peers, as performance expectations adjusted for added risk. By examining these effects, a better understanding of how the Swedish stock market react upon a large European event is presented and some of the parameters influencing abnormal returns.