Impact of Volatility Spillover on the Currency on Pound

Running Head : RESEARCH PROPOSAL
Research Proposal
Name of the Student
Name of the University
Author Note

Topic - The impact of volatility spillover on the currency on pound before and after brexit
Introduction
The spillover effect is the impact which seemingly unrelated events in a particular nation
can leave on the economics of the other countries. There are positive spillover effects also but
the term is mostly applied to the negative impacts of a domestic event on other parts of the world
such as stock market prices, earthquake etc connect to the macro environment (Plakandaras et
al.2017). From the perspectives of a U.S consumer, the positive spillover effect was seen during
the struggle of EU with the Greek debt crisis in the year 2015. The spillover effects are a kind of
network effects which has increased with the growth of globalisation in the stock and trade
markets depending on the financial connections between the world economies. The US- Canada
trade relationship is a good instance of spillover effects. This is because of the reason that the
main market of Canada is US through a wide margin across every export-oriented sector
(Alvarez-Diez, Baixauli. and Belda-Ruiz 2019). The volatility spillover effects of the economic
markets have been always a focus on the scholars and the regulation departments both globally
and internationally. Impact of Brexit on pound is amplified by the reliance of Canada on the US
market for the growth. From the reports of the year 2009, it is found that China has also become
a huge source of spillover effect as well.
In the recent years, study and research on the effect of the volatility spillover have been
focused on in the developed countries but it is quite less in the emerging markets. There have
been studies on the effect of volatility spillover between the stock price of the subjects and
exchange rates in almost six industrial countries such as the United Kingdom, the United States,
German, Japan, Canada and France. The outcomes showed that except for Germany, there were

significant effects of the volatility spillover to the exchange market from the stock market. There
is further the reverse effect that was faint from the exchange market to the stock market. Some
scholars believed that in the bigger and the mature countries, the domestic factors had influenced
the financial markets in a stronger way than all of the foreign factors
The decision of the United Kingdom for leaving the European Union that is brexit after
43 years has resulted in turmoil in the exchange rates and the Global stock market. Specifically
the pound which is relative to the dollar has almost lost 15% of its value in the week after
documentation of Brexit. The United Kingdom has finally left the European Union and a couple
of months it might have received a commemorative coin to remember. It has been reported that
planning for special 50 Pence Brexit coins were to be minted in the mass circulation which is
stamped with the plan departure date of October 31st and the message is that friendship with all
Nations. It is a sign of worry regarding Brexit which has impact on the value of the country's
currency and a group of British conservative lawmakers had written to the new Prime minister to
ask that if he can clarify what he would accept as a compromise in terms of negotiation with the
EU rather than going straight for the no-deal scenario.
The fluctuation of a particular variable in respect to the time is called volatility. There are
studies that have examined the connection between the foreign exchange market and the stock. It
is found that US dollar revaluation is related positively to the return of the stock market. On the
other hand, there are some negative connections too. Notably, the volatility spillovers between
all of the foreign exchange markets have been recognized by Bubak, Kocenda and Zikes (2011)
having taken the USD/EUR foreign exchange rates.
The aims and objectives
 To find out the way volatility spillover is applied of different currencies (Euro GBP JPY
and CHF ) over the different time periods .

 To find out if the volatility of the currencies is affected by the brexit.
The research questions
 Are the volatility spillovers among main currency such as Euro GBP JPY and CHF after
the brexit ?
 Is GBP the main volatility contributor?
The literature review
The financial supervision regulation department along with the scholars has always
focused on the volatility spillover effect of the financial markets. The stock markets and the
foreign exchange have returned gradually to the operations oriented with the market along with
the interactions between the markets which started appearing as the associated features. It is done
along with the China which extended the reform of the total management of the foreign
exchange (Wadsworth et al. 2016). With the liberalization and the international financial
integration acceleration, China’ volatility spillover effect extended the foreign exchange reform
with the structuring of the shareholder. With the international financial integration acceleration
and the liberalization, China’ volatility spillover effects on the stock market and foreign
exchange have increased gradually. The volatility spillover effect further reflects the second
moment relationship of the variable where the volatility of the market is fully influenced by the
early stage and also by the volatility that came from the market. The effect of the volatility
spillover exists quite widely in various types of the financial markets of various regions. It is a
significant aspect of volatility in all of the financial markets which instigates the process of
volatility conduction from one particular market to the another market.
The United Kingdom has preferred to leave the European Union which is thought as a
historic referendum on 2016 , June which is known as the referendum of Brexit. This withdrawal
from the EU membership that expected to have taken place in 2019 sometimes developed more