Gamblers predicted Brexit before financial traders: Study
LONDON: International finance markets lagged behind punters having a flutter when it came to getting the Brexit result right on EU referendum night, according to a study.
The study, published in the International Journal of Forecasting, shows that gamblers sensed the Leave vote coming an hour before the currency experts in the city - creating a window of “arbitrage” during which the price difference between betting and foreign exchange markets yielded up to a seven per cent return on the pound.
Economists from the University of Cambridge in the UK compared the behaviours of the Betfair betting market and the sterling-dollar exchange rate from closure of the polls at 10pm, when odds of 10 to 1 were being offered on Brexit.
Both markets were “informationally inefficient” - very slow to react despite the data already available, as well as that flooding in from vote counts across the country.
This meant there was money to be made by trading early on either market, researchers said.
The study shows the betting market moved to a Leave result around 3am, by which time Brexit odds had reversed (1 to 10).
Yet the foreign exchange market didn’t fully adjust to the reality of Brexit until around 4 am. At 4.40 am the BBC predicted a Leave victory.
Researchers say the findings support the idea that gambling, or so-called “prediction markets”, might provide better forecasts of election outcomes than either experts or polls. PTI