Brexit prediction: When punters scored over financial markets
LONDON: Gamblers had a better sense of the prevailing mood on June 23, 2016 - the day of the UK-EU Brexit referendum than financial markets, according to a research at the University of Cambridge.
The study shows how financial markets should have predicted Brexit hours before they did, and that betting markets beat currency markets to the result by an hour - producing a profit-making scope.
Researchers from the university’s Faculty of Economics compared the behaviour of the betting market and the sterling-dollar exchange rate from the closure of the polls at 10pm that day.
Both markets were “informationally inefficient”; they were slow to react despite data being available and also with information flooding in from the vote count. Therefore, there was money to be made by trading early on either market.
The study shows the betting market moved to a ‘Leave’ result at around 3am. Yet, the foreign exchange market did not adjust to the reality of the result until around 4am. At 4.40am, the BBC predicted a ‘Leave’ victory.
Tom Auld, lead author of the study published in the International Journal of Forecasting, said, “It looks like the gamblers had a better sense that ‘Leave’ could win, or that it could at least go either way.”
More than 182,000 individual bets were placed with Betfair and over 88,000 trades were made in the GBP futures market during this sevenhour window.