Examining the impact of the Brexit referendum vote on European exchange rates

This thesis examines the impact of the "Leave" result in the Brexit referendum on European exchange rates. By employing the event study methodology, the thesis investigates the magnitude of returns caused by the event, defined as abnormal returns, in the exchange rates. Two models, the mean-adjusted returns model and the market model, are used when computing the abnormal returns. In addition, the statistical significance of the abnormal returns is examined. Daily exchange rate data is gathered from 27 Nov 2015 to 29 Jun 2016 for the Swiss franc, Czech koruna, euro, Hungarian forint, Norwegian krone, Polish zloty and the Swedish krona, all measured against the British pound (GBP). For the market model, daily GBP per Special Drawing Rights data is gathered from the same period. The thesis finds positive abnormal returns for the currencies during the day of the referendum result publication. On the following day, abnormal returns are largely explained by the market-wide movements. The largest abnormal returns are found in the Norwegian krone, which sees unique abnormal returns of 3.8% cumulatively over the referendum. Largest total abnormal returns during the event day are seen in the Swiss franc (7.1%), consistent with its status as a safe haven currency. While the abnormal performance is largely similar during the event day, differences can be observed during the days surrounding the referendum. In line with the theoretical background of the methodology as well as the nature of the event, meaningful differences between the two models are observed.