Brexit and the reversal of financial influence: the UK’s shift from net volatility transmitter to receiver

This paper examines the long-term impact of Brexit on financial market interdependence by analysing net volatility spillovers between the UK and eight key European economies. Using a VAR-DCC-GARCH model and the Diebold-Yilmaz connectedness framework applied to daily stock index returns, we compare the pre-Brexit (2011–2016) and the post-Brexit (2020–2025) periods. The results reveal a structural shift. The UK transitioned from a net transmitter of volatility shocks (+11.8) before Brexit to a net receiver (-5.5) afterward. This reversal was driven by a reduction in the UK's ability to propagate volatility to European markets rather than reduced sensitivity to European shocks. Concurrently, Germany and Italy emerged as the primary beneficiaries, strengthening their roles as dominant volatility transmitters. Although the UK's influence diminished, the total system connectedness remained stable at approximately 71%, suggesting that other European markets have compensated for this shift. Interpreted through theories of financial segmentation and cross-market information transmission, our findings show that Brexit has structurally reconfigured the UK's position within the European financial system, diminishing its informational leadership while maintaining its exposure to regional shocks.