The impact of the Brexit referendum outcome on Great British Pound currency pairs
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2022-07-13
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en
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Abstract
This event study investigated the impact of the Brexit referendum outcome on Great British Pound currency pairs. The impact was measured in terms of (cumulative) abnormal returns. These (cumulative) abnormal returns were calculated via three different foreign exchange return models, i.e. the mean-adjusted, the market-adjusted and the foreign exchange asset pricing model. A t-test was used to test the significance of the (cumulative) abnormal returns. It turned out that the Brexit referendum outcome only had a significant negative impact on Great British Pound currency pairs on the event date, but not any days before or after. This finding supports similar event studies concerning the effect of exogenous shocks on exchange rates. The findings are, however, contrary to the findings concerning the effect of the Brexit referendum outcome on stock markets. This difference in results nicely contrasts the different natures of the stock and foreign exchange market and expands the existing literature concerning the effects of the Brexit referendum outcome on financial markets. The findings further can provide useful information for among other foreign exchange investors and traders concerning the duration of holding their financial positions during (economic) uncertain times on the foreign exchange market.
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Faculteit der Managementwetenschappen