Brexit or Bremain ? Evidence from bubble analysis

Marco Bianchetti, Davide Galli, Camilla Ricci, Angelo Salvatori and Marco Scaringi

Papers from arXiv.org

Abstract: We applied the Johansen-Ledoit-Sornette (JLS) model to detect possible bubbles and crashes related to the Brexit/Bremain referendum scheduled for 23rd June 2016. Our implementation includes an enhanced model calibration using Genetic Algorithms. We selected a few historical financial series sensitive to the Brexit/Bremain scenario, representative of multiple asset classes. We found that equity and currency asset classes show no bubble signals, while rates, credit and real estate show super-exponential behaviour and instabilities typical of bubble regime. Our study suggests that, under the JLS model, equity and currency markets do not expect crashes or sharp rises following the referendum results. Instead, rates and credit markets consider the referendum a risky event, expecting either a Bremain scenario or a Brexit scenario edulcorated by central banks intervention. In the case of real estate, a crash is expected, but its relationship with the referendum results is unclear.

Date: 2016-06
New Economics Papers: this item is included in nep-cmp, nep-fmk and nep-net
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