The Influence of Brexit on the Interdependence Between Stock Markets : A Study on the UK and Nordic Stock Markets

This thesis investigates the impact of Brexit on the UK and Nordic stock markets, focusing on how their interconnectedness and spillover dynamics evolved in the years following the Brexit referendum. Using advanced econometric models including EGARCH, and the TVP-VAR framework combined with the Diebold and Yilmaz spillover index, the study analyzes return and volatility transmission across selected indices representing the UK, Sweden, Norway, Denmark, and Finland from June 2014 to January 2025. The findings confirm that Brexit contributed to a decline in the UK's role as a central market influencer, with a notable shift from a net transmitter to a net receiver of shocks. In contrast, Nordic countries displayed heterogeneous responses, with some increasing their market influence while others’ influence diminished. The results suggest that Brexit facilitated regional decoupling, highlighting a restructuring in European financial markets amid de-globalization trends. This research enhances understanding of how major political shocks reshape regional financial networks and also highlights the importance of sectoral and structural factors in the countries studied. Future studies should explore a broader range of asset classes and could extend the observed timeframe to achieve even greater accuracy, aiding policymakers and investors in navigating times of change in the global economic landscape.