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The relation between the real and the financial economy has been a popular topic in the history of economics. Particularly the financial crisis of 2008 and the European sovereign debt crisis have renewed emphasis on this issue, since the outbreak of these financial related crisis also had an impact on the real economy. The existing interdependencies between the financial and the real economy lead, however, to major difficulties regarding the empirical investigation of the (causal) relation of both sides. Moreover, policy events or political shocks like the Brexit have the potential to impact both the financial and the real economy simultaneously. All in all, for financial market participants, real-side businesses as well as policy-makers it is crucial to understand these dynamic links and to draw lessons from events like crisis and incisive policy decisions. This doctoral thesis deals with short- and the long-horizon effects of political events on financial markets and the real economy and investigates the crisis-dependent impact of macroeconomic factors on equity prices. Thus, the purpose of this dissertation is to contribute to the literature of financial and real economy and to improve the empirical knowledge about implications of policy events. In the first empirical study, the impact of Brexit-related events on the spot exchange rate of the British pound against the euro and the US dollar is explored by using event-study techniques. We want to find out whether Brexit-related news, including the Brexit referendum itself, has an impact on British pound exchange rates. By splitting our Brexit-related events into ‘good’ Brexit news and ‘bad’ Brexit news, we find an impact of Brexit news on British pound exchange rates. Bad Brexit news is associated with a depreciation of the British pound against the euro and the US dollar whereas ‘good’ Brexit news appreciates the Pound against the euro. Furthermore, our empirical results suggest that market participants display a delayed reaction to bad Brexit news. As the referendum has clearly a significant impact on both British pound/euro and British pound/US dollar exchange rate volatility, the impact of Brexit news is only for the British pound/euro exchange rate volatility measurable The second study investigates the delayed impact of macroeconomic factors like monetary and real factors, German government bond yields, sentiment and other leading indicators on the main German stock index, namely the DAX30, for the time period from 1991 to 2018. Using a dataset on 24 factors and over a timeframe of about 27 years, we find evidence that across most subsamples, the Composite Leading Indicator (OECD), the Institute for Economic Research (ifo) Export Expectations index, the ifo Export Climate index, exports, the Consumer Price Index (CPI), as well as 3 y German government bonds yields show delayed impacts on stock returns. We further find that the delayed impact of the constituents of the monetary aggregate M2 on stock returns changed direction between the crisis and post-crisis periods. Overall, the results illustrate that in the crisis period a larger number of factors and economic indicators had significant impacts on the stock returns compared to the pre- and post-crisis periods. This implies that in the post-crisis period a macro-driven market prevails. The third study aims to measure the effect of the Brexit process on the United Kingdom’s real economy up to 2019Q2. The results are twofold: Firstly, compared to the existing literature, the PDA improves the measurement of the impact of Brexit on the real economy regarding computation intensity, the feasibility of statistical inference and a wider application area. Secondly, the estimated counterfactuals for the UK show that the Brexit process has played a crucial role in the UK’s economy, leading to lower GDP (growth rates), lower private consumption, lower gross GFCF and higher exports. On average, GDP growth has declined between 1.3 and 1.4 percentage points, whereby the cumulative loss ranges between 48 and 54 billion British pounds. Moreover, private consumption in the UK has declined 4.7 billion British pounds quarterly on average. The predicted counterfactuals show that the impact of the Brexit process on GFCF has begun in 2018Q1, whereby the average treatment effect amounts to -2.9 billion British pounds. The UK’s exports increased since the referendum, most likely due to the depreciation of the British pound post-Brexit. The average quarterly effect of the Brexit process on exports is estimated here at 4.8 billion British pounds. Chapter 2 is based on a paper titled “The impact of Brexit news on British pound exchange rates,” co-authored with Arthur Korus, and published in International Economics and Economic Policy (2019, Vol. 16(1), pp. 65-102) as part of the special issue on “Institutional Changes and Economic Dynamics of International Capital Markets in the Context of Brexit”. Chapter 2 is only available here: https://doi.org/10.1007/s10368-018-00423-0 . Chapter 3 is based on a paper titled “The Impact of Macroeconomic Factors on the German Stock Market: Evidence for the Crisis, Pre- and Post-Crisis Periods,” co-authored with Michaela Hönig, and published in International Journal of Financial Studies (2019, Vol. 7(2), 18) as part of the special issue on “Macro News and Financial Variables”. Chapter 3 is only available here: https://doi.org/10.3390/ijfs7020018 . Chapter 4 is based on a paper titled “Quo Vadis, Britain? – Implications of the Brexit Process on the UK’s Real Economy” published as a Discussion Paper at the European Institute for International Economic Relations (2020, Discussion Paper No. 268). Chapter 4 is only available here: https://eiiw.wiwi.uni-wuppertal.de/en/publications/discussion-papers/no-268.html . |
