European real estate companies' reaction to Brexit: An event study
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Insinööritieteiden korkeakoulu |
Master's thesis
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Authors
Date
2019-10-21
Department
Major/Subject
Mcode
Degree programme
Master's Programme in Real Estate Economics (REC)
Language
en
Pages
57+17
Series
Abstract
Brexit is unequivocally expected to have economic repercussions and send ripples across Europe. The implications are expected to reflect on the performance of the various markets through transmission channels. Those transmission channels could be concluded in the fundamental macroeconomic indicators. The real estate investment is a substantial prominent market that is expected to be affected by the implications of Brexit and sensitively react to the possible transmission channels. The research investigates the European real estate companies’ reaction towards those transmission channels and their implications. It is hypothesized that companies with higher exposure to Brexit’s effects, and accordingly, channels of transmission, should exhibit a more pronounced reaction. The empirical examination employs an event study framework augmented by multivariate regression analysis, where significant Abnormal Returns (ARs) and Cumulative Abnormal Returns (CARS) were used as leading indicators for real estate market reaction. The exposure is proxied by the magnitude of the company’s direct investment in the markets which are prone to the implications. Brexit was proxied by the Referendum event that took place on 23 of June 2016. Fifty-two listed real estate companies, from 9 different countries were sampled. The results suggest that exposure to the forecasted negative repercussions has a significant adverse impact on the real estate companies’ returns, while exposure to possible positive consequence has a significant positive and negative reaction. The findings, on the one hand, brace the Efficient Market Hypothesis. It displays the market’s ability to swiftly price-in expected negative and positive repercussions. On the other hand, it vividly demonstrates the impact of Brexit on the real estate market.Description
Supervisor
Falkenbach, HeidiThesis advisor
Falkenbach, HeidiKeywords
European real estate companies, Brexit, event study, macroeconomic effects, Efficient Market hypothesis, listed real estate