Narrow Results

Investigating the effects of Brexit on firms’ innovation behavior is pivotal to understand future possible economic growth and welfare effects of such policy decisions in the UK. By applying a difference-in-difference (DID) methodology on a sample of 2846 firm-year observations from 2013 to 2018, we address this question observing a decrease in UK firms’ research and development expenses compared to European firms. Specifically, we observe an R&D decrease of UK firms of about 10%, and of about 1.3% compared to EU firms. Our results offer important evidence for policymakers and UK regulators, warning on the future detrimental impact of Brexit on UK firms’ innovation policies.

In the 12 months from the middle of June 2016 to the middle of June 2017, a number of events occurred in a relatively short period of time, all of which either had, or had the potential to have, a considerably volatile impact upon financial markets.

The events referred to here are the Brexit referendum (23 June 2016), the US election (8 November 2016), the 2017 French elections (23 April and 7 May 2017) and the surprise 2017 UK parliamentary election (8 June 2017).

All of these events—the Brexit referendum and the Trump election in particular—were notable both for their impact upon financial markets after the event and the degree to which the markets failed to anticipate these events. A natural question to ask is whether these could have been predicted, given information freely available in the financial markets beforehand. In this paper, we focus on market expectations for price action around Brexit and the Trump election, based on information available in the traded foreign exchange options market.