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Archive for June, 2016

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Posted On 11  Jun  2016  

The mispricing of risk by analysts and markets

Britain’s referendum on EU memberships has negative implications for GBP, EUR, British economy and the European economy. What is bad for Europe is not good for the global economy. In the event that Britain votes to leave the EU, it is expected that Sterling will sell off significantly against the USD and less significantly against the Euro. No one has a crystal ball and analysts are all over the place on the extent of the sell-off. Some think that on the downside perhaps a 10% reduction in value should suffice. Others think that GBP could fall to 1.15 to the dollar. Analysts hedge their bets by making longer term predictions when we are not asking them to do so. We want to know what will happen a day or two before the vote and critically on the day and a couple of days after. The answers are really quite complex.