The Political Uncertainties of the United Kingdom-2022 and Stock Market Reactions: An Event Study Analysis for LSE and Other Major European Stock Markets

The year 2022 has been one of the extremely uproarious in contemporary British politics, caused by severe political crises and uncertainties. The study aims to examine three major events related to the UK political uncertainties in 2022 and its impact on the UK and other major European stock markets using the market model of the event study methodology. The daily closing price data of the FTSE 100 index, its constituent stocks and the benchmark indices of 14 other major European stock markets were considered as per the event window constructed in the study. The empirical results of the study exhibited that the resignation announcement of Boris Johnson and Lizz Truss had positive abnormal returns on the day of the announcement. Subsequently, the announcement of Rishi Sunak as the PM of the UK had a stronger abnormal return on the announcement day. Further, the sector-wise impact analysis confirmed that Financials, materials, Energy, industrial, and real estate sectoral stocks have reacted with positive abnormal returns. Also, when verifying the impact on other major indices in European markets, it is noticed that only for the resignation announcement of Boris Johnson were there positive abnormal returns in benchmark indices of Italy, Netherlands, and Norway. The study confirms that political uncertainties like the prime minister's resignation bring short-run market inefficiency and provide opportunities for abnormal returns. The findings of the study offer some significant implications for the market participants such as traders, investors, portfolio managers and analysts. The findings will provide insights for them to devise trading strategies and risk management and to make investing decisions such that the portfolio of the investors is resilient to such uncertain political events.