The British Pound on Brexit night: a natural experiment of market efficiency and real-time predictability

Ke Wu, Spencer Wheatley and Didier Sornette
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Ke Wu: ETH Zurich
Spencer Wheatley: ETH Zurich
Didier Sornette: ETH Zurich and Swiss Finance Institute

No 17-12, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Exploiting the near-experimental conditions provided by the British Pound market in US Dollars during the Brexit vote of June 23rd, 2016, we unearth a major challenge to the Efficient Market Hypothesis. With a single factor of prior polling information, we show that the Brexit result could have been predicted with high confidence under realistic conditions, knowing only the first 20 of all 382 local voting results. However, the market was severely delayed in re flecting this fundamental information. This collective failure indicates both generic inefficiency and a specific inertia/durable bias in the market similar to herding during bubbles.

Keywords: Brexit; efficient market hypothesis; response function; one factor model; prediction; market failure (search for similar items in EconPapers)
JEL-codes: C51 C53 C54 C93 D72 D83 G17 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2017-03
New Economics Papers: this item is included in nep-cdm and nep-exp
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1712

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