Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

So Brexit wasn't that bad after all. The sell-off in stocks already seems like ancient history, with the U.K.'s FTSE 100 Index ending Wednesday higher than it was before the fateful referendum's results became known.

There are plenty of reasons to celebrate and pile into risk assets. After Brexit, a Fed rate increase looks unlikely this year and some are even betting it won't happen in 2017. And while the vote added a heap of uncertainty over the future of Britain and the European Union, none of that will play out imminently. Plus, central banks are opening all the spigots, having learned their lesson in 2008.

Like It Never Happened
The U.K.'s FTSE 100 stock index is back above where it was before the Brexit vote
Source: Bloomberg

But wait, is the worst really over? The final verdict will really come in the next two weeks. Much of the rally in the past couple of days may have a more mundane explanation than the outlook for the world economy -- which is far from rosy. The gains may just be the result of fund managers putting their high cash balances to work and buying cheap stocks ahead of the end of the quarter, when they have to report their holdings and performance to investors.

In 1991, a group of scholars led by Josef Lakonishok and including behavioral finance guru Richard Thaler studied the effect of so-called window dressing by pension-fund managers in quarter-end stock market rallies. Among the strategies outlined was selling losers, slowing down the sale of winning shares and buying those that were among the worst hit. Trading of losing stocks is the most intense at the end of the quarter, the academics concluded. Investors both try to get rid of long-held losing investments and to buy beaten-down shares that they believe are undervalued. There are plenty of those out there after Friday's sell-off.

The aftermath, however, is undisputed: Markets tend to adjust at the start of the quarter, once the buying frenzy is over. In the past 30 years, the MSCI World index rallied in the last week of the quarter almost half the time. The reporting period that followed those rallies started with a weekly loss 59.5 percent of the time.

Next week could well fall within the 40 percent of good weeks, given expectations that central banks will pump record liquidity into the system. But haven assets suggest investors aren't completely unworried. 

Missing Correction
Gold prices rose 5.4 percent in the two trading days that followed Brexit. They've lost only 0.6 percent since the relief rally started
Source: Bloomberg

A credible rally in risk assets would normally be followed by a sell-off in the safest investments. This could still happen, if the buying of equities picks up. For now, the jury is out. Until someone proves that this mannequin has life, investors are probably safer just window-shopping.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Christopher Langner in Singapore at

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Matthew Brooker at