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.
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