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The impact of Brexit news on British pound exchange rates

  • Arthur KorusEmail author
  • Kaan Celebi
Original Paper

Abstract

Using event-study techniques, we investigate the impact of Brexit-related events on the spot exchange rate of the British pound against the euro and the US dollar. We want to find out whether Brexit-related news, including the Brexit referendum itself, has an impact on British pound exchange rates. By splitting our Brexit-related events into ‘good’ Brexit news and ‘bad’ Brexit news, we find that Brexit news has an impact on British pound exchange rates. Bad Brexit news is associated with a depreciation of the British pound against the euro and the US dollar whereas ‘good’ Brexit news appreciates the Pound against the euro. Furthermore, our empirical results suggest that market participants display a delayed reaction to bad Brexit news. As the referendum has clearly a significant impact on both British pound/euro and British pound/US dollar exchange rate volatility, the impact of Brexit news is only for the British pound/euro exchange rate volatility measurable. Besides the asymmetric volatility pattern towards positive and negative shocks in general, we find that the statistically significance and the magnitude of the impact of good Brexit news is higher than these of bad Brexit news. Concerning the British pound/US dollar exchange rate volatility, our results display a weak presence of volatility asymmetry in terms of shocks and good/bad Brexit news, respectively.

Keywords

Spot exchange rate Brexit Event-study EGARCH 

JEL classifications

C 32 C58 F 31 G15 

Notes

Acknowledgements

This paper is part of EIIW research funded by the Deutsche Bundesbank. While the authors gratefully acknowledge funding from the Deutsche Bundesbank within the project “The Influence of Brexit on the EU28: Banking and Capital Market Adjustments as well as Direct Investment Dynamics in the Eurozone and other EU Countries”, opinions expressed within represent those of the authors and do not reflect the views of the Deutsche Bundesbank or its staff. We gratefully acknowledge editorial assistance by David Hanrahan (EIIW), data assistance by Lev Nazarov and Valeryia Siarheyeva, comments by Prof. Dr. Andre Jungmittag, Frankfurt University of Applied Sciences and IPTS Sevilla, Prof. Dr. Frank Bohn, Radboud University, Prof. Dr. Volker Clausen, University of Duisburg-Essen, Tobias Gruhle, Johannes Gutenberg-University, EIIW seminar participants and participants of the 14th CEUS Workshop on European Economics. Comments from Alexandra Dumitru, Rabobank, Manfred Kremer, European Central Bank, Prof. Dr. Paul J.J. Welfens, University of Wuppertal, Andrew Mullineux, University of Birmingham, and Christopher Thiem, University of Duisburg-Essen, at the EIIW workshop, March 16, 2018, are appreciated. The usual disclaimer applies.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.EIIW at the University of WuppertalWuppertalGermany
  2. 2.Schumpeter School of Business and EconomicsWuppertalGermany
  3. 3.Frankfurt University of Applied SciencesFrankfurtGermany

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