The impact of the Brexit referendum on British and European Union bank shares: a cross-correlation analysis with national indices

Besides the possible political and geostrategic impact, the Brexit referendum and the respective citizens' decision had immediate economic impacts such as the decrease in GDP growth and the impact on exchange rates. Furthermore, the fact that London is one of Europe's financial centres would surely have an impact on this sector, with the banking sector as a particular case to be studied, due to its importance in society, both for firms and private individuals. In this paper, we analyse a wide range of banks in the European Union, in order to understand if they are now more correlated with national indices and with the Eurostoxx 600, a general index of the Eurozone. The results show that Eurozone banks generally decreased their effect on national indices, but some evidence of increasing correlation with the Eurostoxx was detected in the short run. Therefore, the European Central Bank should focus attention on this particular sector. Regarding non-Eurozone countries, they increased their correlation with national indices and decreased it with the Eurostoxx. This last result could be interesting, suggesting that monetary authorities could have the possibility of dealing easily with possible economic shocks.