Contemporary Europe needs to make important collective economic and foreign-policy decisions. Many authors argue that uncertainty has influence on the markets' behavior. Therefore, we have decided to analyze the impact of the uncertainty on the returns and the volatility of two major European market indices Germany (DAX) and the U.K. (FTSE 100) across selected quantiles. We present results for the time-period from January 3, 2000 to December 30, 2016. As influential factors, we consider the Economic policy uncertainty (EPU) indices for Europe, the United Kingdom, Brexit and low prices of the crude oil. In our paper, we have found an asymmetric dependence of the analyzed market indices on the selected factors. EPU Brexit had no or weak impact on the analyzed data. Our conclusion shows to investors how sensitive German and English markets are to the uncertainty in Europe. JEL Classification Numbers: C21, C40, G11; DOI: http://dx.doi.org/10.12955/cbup.v5.902 Keywords: quantile regression, uncertainty, Brexit.
IntroductionPolicy uncertainty in Europe has intensified because of the Global Financial Crisis, serial crises in the Eurozone, Brexit, etc. Following the recession in 2007-2009, the uncertainty of economic policy has increased as a result of uncertainty among businesses and households about future tax, regulatory, spending, health and monetary policies. However, dominant entrepreneurs and households decreased their spending on investment, consumption and rent following the recession, which resulted in slowing down the increase in policy uncertainty. Baker et al. (2015) investigated the role of policy uncertainty, and they have developed an index of economic uncertainty (EPU) for the United States. Bloomberg gives us an opportunity to analyze economic policy uncertainty for Europe, the United Kingdom and for Brexit in indices EPUCCEUM, EPUCUK, and EPUCBREX. The construction of these indices is based on newspaper articles regarding policy uncertainty concerning economy, uncertainty and information on spending, deficit, regulation, budget, tax, policy, or the Bank of England, or the ECB. We have taken EPU indices as risk factors for analyzing two major European markets -the DAX, Germany market and the FTSE 100, UK market. In addition to these indices, we have considered the volatility of oil prices and the volatility of the EUSTOXX European market. In this paper, we have used a quantile regression method (Engle and Manganelli, 2004;Alexander, 2008;Birău and Antonescu, 2014;Naifar, 2016;Aymen and Mongi, 2016) to analyze the impact of uncertainty on major European market indices. Precisely, we propose a new model based on quantitative regression approach to explore how the individual mentioned risk factors affect the returns and volatility of the market index DAX and the FTSE 100. Our quantile regression model enables us to analyze the dynamics of the co-movement of the returns and volatilities through selected quantiles. Our findings give insight into the reaction of European equity markets to uncertain...