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The Brexit impact on European market co-movements

Author

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  • Hachmi Ben Ameur

    (INSSEC Grande Ecole)

  • Waël Louhichi

    (ESSCA School of Management)

Abstract

The aim of this paper is to investigate the impact of Brexit on the dependence between European financial markets. We use the Diebold and Yilmaz (2009, 2012) approach to better map the relationship between the three main European markets and we propose an Optimal portfolio weighting to gain insights into the portfolio design dynamics in the period between 2013 and 2019, in particular any changes due to uncertainty surrounding Brexit. First, the findings show that between September 2015 and September 2016, the high level of volatility and spillover confirms the strong degree of market integration, with uncertainty surrounding the referendum outcome having a clear impact on the three main European markets. Second, the direction of spillover in the pre-Brexit period was from the UK market to the French and German markets in anticipation of uncertainty regarding the outcome of the referendum and the period immediately following it. Third, only the conditional correlation between the pair (CAC40–FTSE100) is characterized by an asymmetric effect.

Suggested Citation

  • Hachmi Ben Ameur & Waël Louhichi, 2022. "The Brexit impact on European market co-movements," Annals of Operations Research, Springer, vol. 313(2), pages 1387-1403, June.
    • Handle: RePEc:spr:annopr:v:313:y:2022:i:2:d:10.1007_s10479-020-03899-9
    DOI: 10.1007/s10479-020-03899-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial time series; Asymmetric dependence; Volatility spillover; Brexit;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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