ANALISIS DE RESULTADOS

The Brexit vote took place in the UK on June 23, 2016, the outcome of which sent shock waves simultaneously to the UK and Eurozone asset markets. In this section, we examine the foregoing lead-lag dynamic inter- connections between asset markets in the UK and Eurozone both in the pre- and post-Brexit periods in order to determine to what extent Brexit might have brought a regime change in the lead-lag dynamics of the asset markets in each country. We also investigate the pattern of regime changes to ascertain the extent to which they are similar or dissimilar in both countries. Daily frequency data is the most suitable for answering these questions. In view of this, to perform the event study, we split the data into two non-overlapping sub-samples: before Brexit (January 1, 2010 – June 22, 2016) and since Brexit (June 23, 2016 – June 18, 2019) and estimate the lead-lag dynamics with data from each sub‐sample respectively. The results obtained are reported in Table 8 and 9 which offer some interesting insights.

Table 8: Granger Causality Results for Event Study Before Brexit

From CB5 to CDS From ST to CDS From CDS to CB5 From ST to CB5 From CDS to ST From CB5 to ST

p-value p-value p-value p-value p-value p-value

UK 0.6385 0.0034 0.0556 0.0000 0.1311 0.4710

Eurozone 0.0592 0 0.0166 0.0014 0.0047 0.0709

Source: Author calculations, 2019. CDS, CB5 and ST represent changes in CDS spreads, changes in cross-currency basis swap spreads and stock market returns.

Table 9: Granger Causality Results for Event Study After Brexit

Source: Researchers, 2019. Source: Author calculations, 2019. CDS, CB5 and ST represent changes in CDS spreads, changes in cross- currency basis swap spreads and stock market returns.

From CB5 to CDS From ST to CDS From CDS to CB5 From ST to CB5 From CDS to ST From CB5 to ST

UK 0.0045 0.0150 0.2658 0.2671 0.0000 0.0206

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First, the asset market pairs with a significant lead-lag relationship prior to Brexit lose their significance post Brexit while those for which the lead-lag relations are not significant prior to the crisis becomes significant post-crisis. Interestingly, this pattern is observed in both the UK and Eurozone, providing some empirical evidence that what qualifies as an important leading asset market prior to Brexit may no more be appropriate post-Brexit. Conversely, the asset markets which fail to lead other markets prior to Brexit may have well become significant leading asset markets for other asset markets in the post Brexit era. For instance, prior to Brexit, the stock market and CDS market notably led the other asset markets whereas except for the lead-lag relation from the stock market to the CDS market, they generally do not lead other asset markets after Brexit. Conversely, the CCBS market does not lead the CDS and stock markets pre-Brexit. Also, the CDS market does not lead the stock market before Brexit. Still, both become important leading asset markets after Brexit. In a similar pattern, there was a strong feedback mechanism in the Eurozone during the pre-Brexit period as

all the asset markets more or less led each other. However, in the post-Brexit, it is noteworthy that the leading role of most asset markets in comparison to the other markets has deteriorated. Most of the asset markets fail to exhibit a lead-lag relationship in any direction with other asset markets. These outcomes for the Eurozone are consistent with the view that the dynamic lead-lag links between the asset markets deteriorate after turbulence. One exception is the CDS market which clearly leads the CCBS market in the pre- and post-Brexit subsamples, reflecting the importance of the sovereign CDS market. The lead-lag granger causality results for the crises and post crises subsamples as well as the event study analyses are generally consistent with the accumulated impulse responses of these asset markets for the different subsamples (see Appendix).

In summary, analysis of the subsamples suggests that the lead-lag inter-temporal dynamics between the asset markets generally intensify during turbulent periods. Insights from results in the turbulent periods are consistent with those for the entire period, suggesting that the outcome for turbulent periods drive the entire period outcome. Accordingly, results for the entire period may not carry over into all different sub-periods. Meanwhile, there are dynamic interconnections amidst the three asset markets, and the stock market can be an important leading asset market for the CDS and CCBS markets in the countries analyzed. In most sub- periods, there is a robust lead-lag link from the stock market to other asset markets. There is evidence that the stock market is influential and significantly leads the CDS and CCBS market during crisis and in the post turbulence era to some extent. The leading role of stock market in comparison to both other markets is most visible in the turbulent periods. The event study, which examines how Brexit has influenced the dynamic relations of the asset markets in the UK and Eurozone, shows that in each of the two groups, most of the asset markets which led other asset markets prior to Brexit have become insignificant post-Brexit while those which

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had no leading influence on other asset markets prior to Brexit have turned out more significant and influential post-Brexit. Overall, our robustness analysis and event study provide insights into the intertemporal stability of dynamic linkages among these three asset markets.

5.5 Big picture summary of results, statement of contribution, and implications for the markets