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Risks
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The implications of Brexit
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The implications of Brexit

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (30 June 2017) | Viewed by 13511

Special Issue Editor

Prof. Dr. Alex Weissensteiner

E-Mail Website
Guest Editor
Faculty of Economics and Management, Free University of Bozen-Bolzano, 39100 Bozen-Bolzano, Italy
Interests: asset allocation; financial; risk management; financial engineering

Special Issue Information

Dear Colleagues,

On June 23, 2016, the United Kingdom voted to separate from the EU. In the hours after the announcement, we could observe a huge reaction in the financial markets, e.g., the British pound fell below 1.30 against the US dollar—the lowest level since 1985. In this Special Issue, we seek contributions on two main research questions: First, the estimation of the probability of a Brexit with data available before June 23. Among others, interesting research questions are whether financial markets anticipated this decision, and whether there was a difference between spot and derivative markets in processing the relevant information. Second, forecasting the mid- and long-term economic and financial consequences of such a decision.

Submissions on any of these interesting developments would be welcome.

Alex Weissensteiner
Guest Editor

Manuscript Submission Information

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Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1800 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • economic modeling
  • forecasting economic and financial consequences
  • extracting the probability of a Brexit from historical data
  • spot and derivative markets
  • exchange rates
  • GDP growth rates
  • employment/unemployment
  • short- versus long-term consequences

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Published Papers (2 papers)

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Research

373 KiB  
Article
Bubbles, Blind-Spots and Brexit
by John Fry and Andrew Brint
Risks 2017, 5(3), 37; https://doi.org/10.3390/risks5030037 - 18 Jul 2017
Cited by 11 | Viewed by 4626
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 [...] Read more.
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. Full article
(This article belongs to the Special Issue The implications of Brexit)
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2010 KiB  
Article
Implied Distributions from GBPUSD Risk-Reversals and Implication for Brexit Scenarios
by Iain J. Clark and Saeed Amen
Risks 2017, 5(3), 35; https://doi.org/10.3390/risks5030035 - 4 Jul 2017
Cited by 9 | Viewed by 8351
Abstract
Much of the debate around a potential British exit (Brexit) from the European Union has centred on the potential macroeconomic impact. In this paper, we instead focus on understanding market expectations for price action around the Brexit referendum date. Extracting implied distributions from [...] Read more.
Much of the debate around a potential British exit (Brexit) from the European Union has centred on the potential macroeconomic impact. In this paper, we instead focus on understanding market expectations for price action around the Brexit referendum date. Extracting implied distributions from the GBPUSD option volatility surface, we originally estimated, based on our visual observation of implied probability densities available up to 13 June 2016, that the market expected that a vote to leave could result in a move in the GBPUSD exchange rate from 1.4390 (spot reference on 10 June 2016) down to a range in 1.10 to 1.30, i.e., a 10–25% decline—very probably with highly volatile price action. To quantify this more objectively, we construct a mixture model corresponding to two scenarios for the GBPUSD exchange rate after the referendum vote, one scenario for “remain” and one for “leave”. Calibrating this model to four months of market data, from 24 February to 22 June 2016, we find that a “leave” vote was associated with a predicted devaluation of the British pound to approximately 1.37 USD per GBP, a 4.5% devaluation, and quite consistent with the observed post-referendum exchange rate move down from 1.4877 to 1.3622. We contrast the behaviour of the GBPUSD option market in the run-up to the Brexit vote with that during the 2014 Scottish Independence referendum, finding the potential impact of Brexit to be considerably higher. Full article
(This article belongs to the Special Issue The implications of Brexit)
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