38 Pages Posted: 29 Mar 2017
Date Written: March 24, 2017
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 reflecting 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
JEL Classification: C51, C53, C54, C93, D72, D83, G17
Suggested Citation: Suggested Citation
Wu, Ke and Wheatley, Spencer and Sornette, Didier, The British Pound on Brexit Night: A Natural Experiment of Market Efficiency and Real-Time Predictability (March 24, 2017). Swiss Finance Institute Research Paper No. 17-12. Available at SSRN: https://ssrn.com/abstract=2940173 or http://dx.doi.org/10.2139/ssrn.2940173