The Volatility and Correlation between the Exchange Rate of British Pound and Euro: Based on the Comparison before and after Brexit

Yuke Mei

2022

Abstract

After becoming the first country in history to leave the EU, the UK went through a transition period of 11 months, which ended on December 31, 2020. At this point, the process of the UK’s exit from the EU comes to an end, and it is also the starting point of the future relationship between the UK and the EU. This paper focuses on the changes generated in the sterling exchange rate and the euro exchange rate before and after the UK’s formal exit from the EU, so as to detect the changes in the volatility and correlation between the sterling exchange rate market and the euro exchange rate market. By selecting exchange rate data from the RESSET database, this paper uses the GARCH family model as well as the VAR model to compare the degree of volatility and correlation between the British and European exchange rate markets before and after Brexit, and analyze the changes in the return on the pound exchange rate and the return on the euro exchange rate before and after Brexit, as well as the correlation between the exchange rate fluctuations of the two exchange rate markets. Through theoretical and empirical analysis, the main findings and conclusions of this paper are that after the formal exit from the EU, the volatility of both the pound exchange rate and the euro exchange rate are strengthening, and the effectiveness of the exchange rate market is reduced. After the empirical study, the price volatility spillover effect of the sterling exchange rate market is obvious and it takes longer to recover from the shock of the UK’s exit from the EU; while the euro market is subject to shorter shocks relative to the sterling market, and the correlation between the sterling exchange rate and the euro exchange rate also decreases with the UK’s formal exit from the EU.

Paper Citation

in Harvard Style

Mei Y. (2022). The Volatility and Correlation between the Exchange Rate of British Pound and Euro: Based on the Comparison before and after Brexit. In Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM, ISBN 978-989-758-593-7, pages 204-210. DOI: 10.5220/0011171000003440

in Bibtex Style

@conference{bdedm22,
author={Yuke Mei},
title={The Volatility and Correlation between the Exchange Rate of British Pound and Euro: Based on the Comparison before and after Brexit},
booktitle={Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM,},
year={2022},
pages={204-210},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0011171000003440},
isbn={978-989-758-593-7},
}

in EndNote Style

TY - CONF

JO - Proceedings of the International Conference on Big Data Economy and Digital Management - Volume 1: BDEDM,
TI - The Volatility and Correlation between the Exchange Rate of British Pound and Euro: Based on the Comparison before and after Brexit
SN - 978-989-758-593-7
AU - Mei Y.
PY - 2022
SP - 204
EP - 210
DO - 10.5220/0011171000003440