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Risks 2017, 5(3), 37; doi:10.3390/risks5030037

Bubbles, Blind-Spots and Brexit

1
School of Computing Mathematics and Digital Technology, Manchester Metropolitan University, John Dalton Building, Chester Street, Manchester M1 5GD, UK
2
Sheffield University Management School, Conduit Road, Sheffield S10 1FL, UK
*
Author to whom correspondence should be addressed.
Academic Editor: Alex Weissensteiner
Received: 28 April 2017 / Revised: 12 July 2017 / Accepted: 13 July 2017 / Published: 18 July 2017
(This article belongs to the Special Issue The implications of Brexit)
View Full-Text   |   Download PDF [373 KB, uploaded 26 July 2017]   |  

Abstract

In this paper we develop a well-established financial model to investigate whether bubbles were present in opinion polls and betting markets prior to the UK’s vote on EU membership on 23 June 2016. The importance of our contribution is threefold. Firstly, our continuous-time model allows for irregularly spaced time series—a common feature of polling data. Secondly, we build on qualitative comparisons that are often made between market cycles and voting patterns. Thirdly, our approach is theoretically elegant. Thus, where bubbles are found we suggest a suitable adjustment. We find evidence of bubbles in polling data. This suggests they systematically over-estimate the proportion voting for remain. In contrast, bookmakers’ odds appear to show none of this bubble-like over-confidence. However, implied probabilities from bookmakers’ odds appear remarkably unresponsive to polling data that nonetheless indicates a close-fought vote. View Full-Text
Keywords: Brexit; bubbles; econophysics; over-confidence; politics; political modelling Brexit; bubbles; econophysics; over-confidence; politics; political modelling
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Fry, J.; Brint, A. Bubbles, Blind-Spots and Brexit. Risks 2017, 5, 37.

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