brexit_c

It is a truth universally acknowledged that a maverick cop searching for the truth behind a tragic gangland murder has simply to ‘follow the money’ to reveal the ultimate culprit. The further he follows along the financial trail, the closer he comes to revealing the rancid web or corruption on which The System is based.

Similarly, it is an assumption near universally held, that anyone trying to find the probability of a major political event occurring should also follow the money. Talk is cheap, after all, but betting exchanges and financial markets are where the real experts back their opinions with cool, hard cash. They deal with the world as it is, not how they would like it to be.

Like most commonly held assumptions, there is, of course, a strong element of truth underlying this. You’ll certainly get more sense out of the Betfair ‘Brexit’ price than listening to politicians drone on about the pros and cons of EU membership. But you’d be wrong to follow Betfair’s odds blindly and recent shifts in the Brexit debate should serve as a timely reminder.

The almanis ‘Brexit’ market (chart below) has recently moved significantly towards a ‘Remain’ vote following a longish period of relative stability. This move was generally supported by polls, which had begun to show a somewhat larger lead for the ‘Remain’ camp, but seems to be more highly correlated with a pronounced shift seen in betting markets.

Brexit_a

If I could offer some cheap advice to forecasters, amateur and professional, it would be to follow your own judgement rather than the betting markets. This recent shift in direction seen on Betfair, the world’s largest internet betting exchange, was accompanied by a massive spike in the volume of money being put to work. Such an unusual spike that it seems it could only really be the work of a single, very wealthy punter.

The graph below shows Betfair’s implied Brexit probability (note this is the inverse of the almanis market shown above which shows the probability of a vote to remain) alongside the volume of money being invested.

Brexit_b

Betfair doesn’t provide exact dates on its graphs but, as best I can figure, this rush of near £400k into the market appears to have occurred mid-April. Around that time the UK Electoral Commission designated an official ‘Leave’ campaign (13th April) and the official referendum campaign, along with its accompanying enforcement of campaign spending limits, got underway (15th April). It’s worth noting that the campaign spending plans of some major private donors backing the various ‘Leave’ campaigns would likely have been significantly affected by these events.

Whatever the source and timing of this huge injection of funds, it appears to have proved a turning point for the Betfair market. The implied probability of Brexit duly fell from around 37% to around 26%. But did the facts change? Or was it just that someone with a view and lot of money to burn turned up?

On the almanis forecasting platform, as with betting markets, we’ve got the cool, hard cash incentives driving activity. But everyone on almanis starts with 1,000 points to invest and zero financial outlay. No wealthy punter can come in and start pushing almanis markets around, as one famously did in the 2014 Scottish independence referendum. That’s just one of the reasons almanis will be more accurate.

By all means check the betting markets before making your own Brexit forecast. But don’t just follow the money. Make your own judgement.

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