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The Brexit vote and currency markets

The Brexit vote and currency markets
The Brexit vote and currency markets
This paper studies the effect of the Brexit vote on the intraday correlation and volatility transmission among major currencies. We find that the vote causes an increase in the correlation among the safe-haven currencies of the Swiss franc and Japanese yen as well as gold, and also find a decrease in their correlation with the directly involved currencies of British sterling and the Euro. These changes are due to the appreciation of the former group and the depreciation of the latter group which represents a flight to quality of investors. We also observe a substantial decrease in volatility transmission between British sterling and the Euro following the Brexit vote due to lower levels of market integration. However the volatility transmission among the currencies has increased in general and their net spillover is positively correlated with their level of volatility and trading activities. Therefore we document the significant impact of the politically important Brexit vote on the high frequency correlation and volatility spillover in the foreign exchange market.
1042-4431
153-164
Dao, Thong, Minh
f3e73ed8-7d99-4f3e-96c2-c966e10541cf
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
Urquhart, Andrew J
ee369df1-95b5-4cdf-bc24-f1be77357c03
Dao, Thong, Minh
f3e73ed8-7d99-4f3e-96c2-c966e10541cf
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
Urquhart, Andrew J
ee369df1-95b5-4cdf-bc24-f1be77357c03

Dao, Thong, Minh, McGroarty, Frank and Urquhart, Andrew J (2019) The Brexit vote and currency markets. Journal of International Financial Markets, Institutions and Money, 59, 153-164. (doi:10.1016/j.intfin.2018.11.004).

Record type: Article

Abstract

This paper studies the effect of the Brexit vote on the intraday correlation and volatility transmission among major currencies. We find that the vote causes an increase in the correlation among the safe-haven currencies of the Swiss franc and Japanese yen as well as gold, and also find a decrease in their correlation with the directly involved currencies of British sterling and the Euro. These changes are due to the appreciation of the former group and the depreciation of the latter group which represents a flight to quality of investors. We also observe a substantial decrease in volatility transmission between British sterling and the Euro following the Brexit vote due to lower levels of market integration. However the volatility transmission among the currencies has increased in general and their net spillover is positively correlated with their level of volatility and trading activities. Therefore we document the significant impact of the politically important Brexit vote on the high frequency correlation and volatility spillover in the foreign exchange market.

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BrexitVote - Accepted Manuscript
Restricted to Repository staff only until 26 November 2019.
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More information

Accepted/In Press date: 26 November 2018
e-pub ahead of print date: 27 November 2018
Published date: March 2019

Identifiers

Local EPrints ID: 426513
URI: https://eprints.soton.ac.uk/id/eprint/426513
ISSN: 1042-4431
PURE UUID: ac160356-0d3b-4cec-a456-1061e7a22d8a
ORCID for Frank McGroarty: ORCID iD orcid.org/0000-0003-2962-0927

Catalogue record

Date deposited: 29 Nov 2018 17:30
Last modified: 17 Jul 2019 00:56

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