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Study of the cross-market effects of Brexit based on the improved symbolic transfer entropy GARCH model—An empirical analysis of stock–bond correlations

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  • Xiurong Chen
  • Yixiang Tian
  • Rubo Zhao

Abstract

In this paper, we study the cross-market effects of Brexit on the stock and bond markets of nine major countries in the world. By incorporating information theory, we introduce the time-varying impact weights based on symbolic transfer entropy to improve the traditional GARCH model. The empirical results show that under the influence of Brexit, flight-to-quality not only commonly occurs between the stocks and bonds of each country but also simultaneously occurs among different countries. We also find that the accuracy of the time-varying symbolic transfer entropy GARCH model proposed in this paper has been improved compared to the traditional GARCH model, which indicates that it has a certain practical application value.

Suggested Citation

  • Xiurong Chen & Yixiang Tian & Rubo Zhao, 2017. "Study of the cross-market effects of Brexit based on the improved symbolic transfer entropy GARCH model—An empirical analysis of stock–bond correlations," PLOS ONE, Public Library of Science, vol. 12(8), pages 1-14, August.
    • Handle: RePEc:plo:pone00:0183194
    DOI: 10.1371/journal.pone.0183194
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    References listed on IDEAS

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    Cited by:

    1. Hui, Eddie C.M. & Chan, Ka Kwan Kevin, 2021. "New test of contagion with application on the Brexit referendum," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 564(C).

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