Market capitalization and shock resilience : European stock market responses to economic and non-economic surges

This study investigates how economic and non-economic shocks impact European stock market performance, with a particular focus on how firms of different market capitalizations, large, mid, and small, respond to systemic disruptions. Two pivotal events are analyzed: the Brexit referendum in 2016, representing a political shock, and the European energy crisis in 2022, representing an economic shock. An event study methodology is employed to measure abnormal returns and cumulative abnormal returns over both short-term and long-term event windows, allowing for a detailed assessment of the magnitude, timing, and persistence of market reactions. The results reveal that firm size significantly moderates stock price sensitivity to shocks, with small- and mid-cap firms displaying greater volatility and deeper abnormal returns compared to large-cap firms across both events. The Brexit referendum generated sharp, immediate market reactions, particularly among smaller firms more exposed to regulatory uncertainty and regional dependencies, with effects that persisted well beyond the initial shock. Conversely, the energy crisis led to a more gradual adjustment process, as the economic nature of the shock allowed investors time to reassess fundamentals, resulting in a slower deterioration of returns and partial recoveries over extended periods. A comparative analysis of these two events highlights important temporal and structural differences: political shocks tend to trigger concentrated, front-loaded declines driven by ambiguity and investor sentiment, while economic shocks disseminate more progressively through financial systems, affecting corporate performance via operational and macroeconomic channels. These findings align with historical evidence from prior crises, such as the Global Financial Crisis and the COVID-19 pandemic, reinforcing the critical importance of firm size, financial flexibility, and international exposure in determining resilience to external shocks. However, it should be noted that several statistical tests, particularly non-parametric and cross-sectional methods, did not confirm significance across all indices and event windows. This highlights some limitations in statistical robustness, especially in long-term estimations and during periods of low volatility. This research offers valuable contributions to the literature by providing a comparative perspective on political versus economic event impacts, emphasizing the heterogeneous effects across market capitalizations and time horizons. Practical implications are drawn for investors aiming to optimize risk management strategies and for policymakers seeking to enhance financial system stability. Limitations regarding event selection, regional scope, and methodological assumptions are acknowledged, suggesting avenues for future research, including cross-regional comparative studies, sector-specific analyses, and exploration of policy intervention effects in moderating shock transmission.