2016 Brexit Vote

Opinion polls and prediction markets had put the probability of a "Leave" vote at roughly 25% heading into June 23, 2016. When results showed Leave winning, GBP/USD fell from 1.50 to 1.32 overnight, a 10%+ move that represented the largest single-day decline in sterling since it was floated in 1971. Global equities dropped sharply. The FTSE 100 fell 8% at the open before recovering. European banks crashed. Safe-haven assets, Treasuries, gold, JPY, CHF, rallied. But the post-vote recovery was remarkable: by July 15, the S&P 500 had made a new all-time high. The UK's specific political risk did not translate into a global risk-off regime. The lesson was about polling errors and the asymmetric payoff of binary event hedges. Prediction markets were systematically biased toward the status quo. Volatility was cheap in advance because consensus was complacent. The regime identified a pattern that would repeat: Trump election (November 2016), Italian referendum (December 2016), and several other binary political events where markets assigned insufficient probability to the non-consensus outcome.