The Brexit Effect: Diversification, Stock Market Valuation and the Exchange Rate

3-year PhD Scholarship, Department of Accounting and Finance

  • Number of scholarships 1
  • Value Stipend: £14,652 pa. Fees: Home/RUK/EU Fee waiver
  • Opens 13 December 2016
  • Deadline 28 February 2017
  • Help with Tuition fees, Living costs
  • Duration 36 months


Candidates are required to have:

  • An excellent undergraduate degree with Honours in a relevant business, scientific/technological or social science subject
  • A Masters degree (or equivalent) will be strongly preferred
  • Students may also have other relevant experience or skills which are relevant to this project (competent quantitative skill is also highly desirable
  • Candidates who are not native English speakers will be required to provide evidence for their English skills (such as by IELTS or similar tests that are approved by UKVI, or a degree completed in an English speaking country).

Candidates should be available to take up study in the UK on 1st October 2017

*Whilst open to International candidates, please note that this scholarship covers Home/EU/RUK Fee rate only.

Project Details

Despite all the negative predictions of the Brexit effect the FTSE 100 has been soaring since the Brexit referendum of 23 June 2016. However, the pound has plunged by almost 15% against the US dollar and other major currencies. Why do we see such inconsistency between stock market valuation and performance of exchange rate since the referendum results? One of the theories offered is the cushioning effect of diversification. Most the FTSE 100 companies have their assets and revenues denominated in foreign currency i.e. not in GBP. This implies that any drop in the pound would fetch more revenues and increased valuation of assets in the functional currency of GBP. Further, since these companies operate across the globe their systematic risks and thus cost of capital is lower than those firms purely relying on domestic capital market. Since cost of capital is inversely related to valuation, we would expect the latter to be higher for firms having greater global exposure.

However, the traditional finance based line of thoughts has been challenged by synergy and complementary school of thoughts of international business (see Hymer, 1960). Reeb, Kwok and Baek (1998) demonstrate that the risk profile of international firms does not match well with the view of risk diversification reinforced by the neo-classical finance-based view. Their empirical results argue that even in the face of declining cross-region correlation of profits, the increase in the variability of profits may augment systematic risk.

The shock of Brexit provides us an ideal laboratory to test the above cited competing theories and provide comprehensive and systematic answer to the question: Does global diversification of revenue generation, domicile of assets and procurement of capital helps to mitigate the adverse effect of macro-economic and political shock? In order to answer this question, we need to launch an extensive scientific empirical investigation covering all the firms listed on London Stock Exchange (LSE) using Brexit as the unexpected exogenous shock that dramatically changed the valuations of individual firms and the exchange rate of the GBP. In addition to having the exogenous shock which provide us an opportunity to undertake a natural experiment, we are able to generate two groups of LSE listed firms. The first group, called treatment group, are those firms which have more than 80% of their revenues and assets denominated in non-GBP currency and thus, could be referred as global firms. The other group, referred as control group, are the firms which have less than 20% of their revenue and assets denominated in foreign currencies. Following economic intuition, it is expected that the valuation and cost of capital of these two groups would be deferentially affected, i.e. higher the diversification lesser the adverse effect of Brexit. Thus, the Brexit shock avails us the opportunity to establish credible causality between macro-economic/political risk and stock market valuation and cost of capital.

How to apply

At this stage, we are inviting applicants to apply for the scholarship only. The successful candidate will then be asked to complete an application for PhD study at Strathclyde. 

All applications should include:

  • a cover letter indicating the candidate's relevant skills/experience and how they can contribute to this research
  • a CV and relevant qualification transcripts.
  • two references (please refer to guidance on references)

When sending the above documents please use the following file-naming convention: fullname_typeofdocument

For example,







Apply now by uploading your documents here. Please note that any incomplete applications or applications with files that do not follow the above format will not be considered.*

*We will keep your details on file to use when any other relevent scholarships arise.