Investor confidence in complex government action: The Brexit case

Brexit’s negotiations allow us to test whether investor confidence in government policy fluctuates during prolonged uncertainty. We identify 15 major Brexit events from the 2016 referendum through full implementation in 2021 and create a market-based investor-trust metric: the correlation between UK sovereign and corporate Credit Default Swap (CDS) spreads. Higher correlations signal stronger alignment of government and corporate risk premia and greater confidence in the government’s Brexit strategy; lower correlations indicate reduced trust and greater exposure to global factors. Using an event study within a Difference–in–Differences framework comparing UK and European firms, we show that confidence rises after credible government actions and falls after fragmentation or delays.