Estimating volatility persistence under a Brexit-vote structural break

We model volatility dynamics and explore volatility persistence under a supposed Brexit-vote structural break. We find that following the Brexit vote, volatility persistence increased significantly in the stock markets but decreased in the foreign exchange market. However we uncover similar patterns in the dynamics of volatility across both markets, with the post Brexit-vote news effect generally contributing less to volatility persistence. Our findings suggest that the increased post Brexit-vote volatility persistence is mainly driven by rising forecast variance from previous periods and that investors may have already priced in the news from the Brexit vote. Therefore, a Brexit-vote structural break may be irrelevant in modelling volatility dynamics.