The Alan Turing Institute
Expected and unexpected
Deciding what events affect the financial markets can sometimes be easy. The fact that the value of Pound dropped following Brexit is likely a causation. The fact that the value of Pound went up following the return of the astronaut Tim Peake is certainly a pure coincidence. Sometimes, making a good guess can be a lot harder. For example, would Brexit affect the FTSE index? In this article, you get to make your guess!
In the time of fake news, can you be sure that an article like this show you genuine events and prices, rather than making the story up? To leave no doubt, this article is created using The Gamma project, which lets you trace the data back to the originl source. We're using events from Wikipedia and exchange rates published by the Bank of England and you can check, on your own, that this is the case!
Exploring the events of 2016
First, let's talk about transparency. If you wanted to check that the dates and descriptions of events in an ordinary article are accurate, you would have to do this by hand, perhaps by going to the Wikipedia page 2016 in the United Kingdom and then check the dates of events in a chart, one by one. You do not need to do any of that in this article, because we fetch the events directly from Wikipedia and we invite you to explore how we do it!
When you load this page, we run the following TheGamma
script to get 2016 events in the UK from Wikipedia, choose those mentioning Jeremy
Corbyn and show them in a table. If you click on
the editor, you will see the source Wikipedia page. If you then replace Jeremy Corbyn
with Theresa May and click "refresh the output", we'll fetch the events of your choice,
so you can see we are not cheating!
How Brexit affected the pound?
Before Brexit, £1 was worth $1.46. After Brexit, £1 was worth $1.28. How exactly did the drop happen? Has the pound started losing value in advance, before the vote on June 24, or did the drop happen after the vote? And has the value recovered after Theresa May became Prime Minister-designate?
The following visualization shows the important events side-by-side with the exchange rate between pound sterling and US dollar. If you click "open source code", you can see our data sources - the events come from Wikipedia and exchange rate is obtained from the Bank of England.
Guess what events matter
If you see the events on a chart, it is easy to make a guess about what the trends might have been and what the effect of the events was. But can you guess which events matter will make the price go down or up on your own? In this section, you get to try. We show you a line charting the price, but you have to guess how it aligns with the events. To get started, click on the charts and then drag up or down with your cursor or fingers.
Gold price during financial crisis
First, let's go back to the financial crisis of 2008. In uncertain times, gold is one of the commodities that people purchase and that gain in price. Did people expect the crash and start buying gold before the crash, or did the price of gold start rising after? Here are a couple of events that may (or may not) have had effect on the price of gold:
Can you move the line representing the price of gold to the right position in the following chart? We loaded the price for a bit before May 2008 and a bit after April 2009, but you need to guess how the events align with the price!
Effect of Brexit on London Stock Exchange
For our second example, we will agian use Brexit. This time, we look at the effect on FTSE rather than on the value of pound. The FTSE 100 index is calculated based on the share prices of the 100 largest companies traded at the London Stock Exchange. This includes a mix of international and British companies such as BP, Tesco, Barclays or EasyJet. Guess how the following events align wth the FTSE price:
Are we suggesting that the succesfull return of British astronaut Tim Peake had an effect on the value of FTSE? If you did not know what the events are and looked just on the chart with labels, perhaps you might think it does. The lesson is simple - guessing which events really matter requires human judgement!