Empirical analysis of market reactions to the UK’s referendum results – How strong will Brexit be?

The Brexit vote and currency markets

“…Recently, Nishimura and Sun (2018) propose a new approach, the Intraday Volatility Spillover Index approach, and show no apparent change in the connectedness of European markets since the Brexit vote over a threemonth period but the volatility spillovers increase when they study the one-month since the vote. Aristeidis and Elias (2018) show that the significant referendum results cause immediate financial contagion and increased uncertainty but these were limited as most markets had fully recovered a few days after the polling day. Tata (2018) explain that 20-30% of the UK-based corporate and investment banking will migrate into the European Economic Area after the vote.…”

The Brexit impact on European market co-movements

“…On June 12, 2018, the parliamentary process regarding the “withdrawal law”, led to a period of uncertainty with the beginning of the “parliamentary ping-pong”. Finally, Aristeidis and Elias ( 2018 ) used intraday data returns to highlight the contagion effect associated with the referendum date. The results of this study with the use of the approach by Diebold and Yilmaz ( 2009 , 2012 ) extended the above work and allowed us to map this relationship in order to better understand the relationship between these markets over the course of our study period.…”

“…Fetzer ( 2019 ) shows that the outcome of this vote was the result of a long term policy, suggesting that austerity policies from late 2010 onward are key to understanding the Brexit. Unlike Aristeidis and Elias ( 2018 ), who considered a period of study covering 6 months before the polling day and 6 months after article 50 of the Lisbon Treaty was triggered, and Belke et al ( 2018 ), who considered the policy uncertainty impact linked to the Brexit on the UK financial market until May 2016, we test the stability of interdependence between the European financial markets 3 years before (pre-Brexit period) and 3 years after the UK’s referendum (post-Brexit period). In fact, the market reaction to a complex event such as Brexit can take a long time and needs to be examined over the long term.…”

“…They demonstrated an increase in volatility spillover from the US to the three largest European markets (Frankfurt, London and Paris) and vice versa during the post-crisis period. Recently, Aristeidis and Elias ( 2018 ) used a copulas approach to investigate the international markets’ reaction to the results of the UK’s referendum. They found a price reversal a few days after the date of the referendum, allowing the stock markets to recover their losses.…”

Segmentation of time series in up- and down-trends using the epsilon-tau procedure with application to USD/JPY foreign exchange market data

“…The considered period includes several events that impacted the financial markets, the Brexit Referendum in June 2016 being one among the most relevant [ 30 , 31 ]. In the foreign exchange market, this event caused the pound sterling to fall against the U.S. dollar to its lowest level since 1985 and a strong appreciation of the Japanese yen.…”