Impact of Brexit on Volatility Connectedness across ASX’s Subindices
Impact of Brexit on Volatility Connectedness across ASX’s Subindices

Author(s): Lukáš Marek
Subject(s): Transformation Period (1990 - 2010), Present Times (2010 - today), EU-Accession / EU-DEvelopment, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: Brexit; connectedness; spillover; variance decomposition; VAR;
Summary/Abstract: In this paper, we apply (Diebold and Yilmaz, 2012) a generalised variance autoregressive framework to measure historical FTSE All-share Index’s (hereafter ASX) sector volatility connectedness with a focus on the Brexit era. The main goal of the paper is to examine if Brexit has altered British inter-market connectedness. We analyse six major ASX’s sectors provided by Bloomberg, which stands for almost 50 % of ASX’s market capitalisation. We use daily prices from May 2006 to the end of May 2019 obtained via Bloomberg Terminal to compute weekly volatility. Then the forecast error variance decomposition is applied to the volatility dataset. The static, as well as the dynamic measurement, is being calculated. We find that the methodology greatly captures volatility shocks, including the shocks primarily caused by Brexit issue. Based on the results, we infer, that the increased volatility connectedness is more of a temporary character than a structural nature.

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