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Bubbles, Blind-Spots and Brexit

Author

Listed:
  • John Fry

    (School of Computing Mathematics and Digital Technology, Manchester Metropolitan University, John Dalton Building, Chester Street, Manchester M1 5GD, UK)

  • Andrew Brint

    (Sheffield University Management School, Conduit Road, Sheffield S10 1FL, UK)

Abstract

In this paper we develop a well-established financial model to investigate whether bubbles were present in opinion polls and betting markets prior to the UK’s vote on EU membership on 23 June 2016. The importance of our contribution is threefold. Firstly, our continuous-time model allows for irregularly spaced time series—a common feature of polling data. Secondly, we build on qualitative comparisons that are often made between market cycles and voting patterns. Thirdly, our approach is theoretically elegant. Thus, where bubbles are found we suggest a suitable adjustment. We find evidence of bubbles in polling data. This suggests they systematically over-estimate the proportion voting for remain. In contrast, bookmakers’ odds appear to show none of this bubble-like over-confidence. However, implied probabilities from bookmakers’ odds appear remarkably unresponsive to polling data that nonetheless indicates a close-fought vote.

Suggested Citation

  • John Fry & Andrew Brint, 2017. "Bubbles, Blind-Spots and Brexit," Risks, MDPI, vol. 5(3), pages 1-15, July.
    • Handle: RePEc:gam:jrisks:v:5:y:2017:i:3:p:37-:d:105098
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    References listed on IDEAS

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    2. Douch, Mustaph & Huw Edwards, T., 2021. "The Brexit policy shock: Were UK services exports affected, and when?," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 248-263.

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