Temporary Border Controls and the Stock Market: Evidence from the Schengen Area

Adam Levai and Jean-François Maystadt

No 2023016, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper evaluates the impact of temporary border controls on the stock market. We construct a new dataset on the reintroduction of border controls by collecting data from official documents. We use these data in two complementary research designs. First, we conduct a quasi-experimental event study using the first refugee-induced border control, which occurred in Germany in September 2015. Second, we conduct a Schengen area analysis covering all border controls between 2006 and 2016, using both a difference-in-difference and a synthetic control method. In both analyses, we find a small negative and short-lived effect on daily stock returns, as well as an increase in their short-lived volatility. These effects are driven by medium and large firms, which are more likely to be involved in cross-border activities. Overall, we find that these border controls initially mildly worsen market expectations, but the market does not overreact by interpreting them as a sign of a possible collapse of the Schengen Agreement.

Keywords: Borders; Border Controls; Schengen; Stock Market; Refugees (search for similar items in EconPapers)
JEL-codes: F20 F55 G14 O52 (search for similar items in EconPapers)
Date: 2023-09-10
New Economics Papers: this item is included in nep-fmk and nep-mig
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