Brexit and Uncertainty in Financial Markets

21 Pages Posted: 31 Jan 2018

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Tommaso Trani

University of Navarra - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2018

Abstract

This paper applies long-memory techniques (both parametric and semi-parametric) to examine whether Brexit has led to any significant changes in the degree of persistence of the FTSE 100 Implied Volatility Index (IVI) and of the British pound’s implied volatilities (IVs) vis-à-vis the main currencies traded in the FOREX, namely the euro, the US dollar and the Japanese yen. We split the sample to compare the stochastic properties of the series under investigation before and after the Brexit referendum, and find an increase in the degree of persistence in all cases except for the British pound-yen IV, whose persistence has declined after Brexit. These findings highlight the importance of completing swiftly the negotiations with the EU to achieve an appropriate Brexit deal.

Keywords: Brexit, uncertainty, IVI index, British pound’s implied volatilities, financial markets

JEL Classification: C22, F30

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and Trani, Tommaso, Brexit and Uncertainty in Financial Markets (January 2018). DIW Berlin Discussion Paper No. 1719, Available at SSRN: https://ssrn.com/abstract=3113182 or http://dx.doi.org/10.2139/ssrn.3113182

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Tommaso Trani

University of Navarra - School of Economics ( email )

Universidad de Navarra
Campus Universitario
Pamplona, 31009
Spain

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