Vegas for political nerds – where the ‘smart money’ is going in #elxn43

It’s Vegas for political nerds. It’s one thing to read the polls, listen to your gut, and have a prediction.  But what about putting hard-earned, cold cash on the line? That’s exactly what UBC’s Sauder School of Business offers with their Election Prediction Market.  You can invest up to $1000 to test your theories.

The prediction market has been taking place in one form or another since 1993.  Here’s why they do it:

The exclusive purposes for conducting the prediction markets are teaching and research. Participants learn first-hand about the operation of a financial futures market and, because they have an added incentive to do so, learn more about the political or economic events associated with the contracts. As a research project, our markets generate valuable data that provide insights into market and trader behaviour.

There are four markets where you can bet:

Popular Vote Share Market

This is my least favourite as the bettors slavishly follow the latest poll results.  Sometimes you will see some sentimental investing, but the results basically mirror poll aggregators.   The payoffs aren’t great unless the pollsters are very wrong.

As the chart below indicates, the betting lines have closely mirrored public opinion during the writ period.  In the past 7 days, the Liberals have traded at a high of 33.69% and the Conservatives peaked at 33.88%. The NDP fever crested at 18.98%, but miserly traders currently peg them at 17.54% (no more Jagmentum, says the market).

Screen Shot 2019-10-17 at 7.52.59 AM.png

Seat Share Market

This one is more interesting and has more volatility.  Right now, the market has the Liberals and Conservatives both at about 39 cents, based on 132 seats each in the House of Commons.  There is likely some betting upside for one of the parties.

The NDP are trading at 11 cents, which translates to 37 seats.  This seems high.  If only I knew how to short sell.  The Bloc Québécois comes in at 10 cents or 34 seats, while the Greens are a penny stock (1.25 cents), translating to 4 seats.  It’s depressing when an historic breakthrough is only trading for a penny!  They don’t even make pennies even more.

This market has seen the NDP move from a low of 7 cents to almost 12 cents in the past week, while the Liberals have dropped from 47 cents to 39 cents.

Screen Shot 2019-10-17 at 8.02.46 AM.png

Parliamentary Plurality Market

Now, here’s a place to make 2:1 on your bet.  Only one party can win a plurality so it’s feast or famine.  The Liberals have moved from 71 cents to 50 cents over the past week, while the Conservatives have moved up from 31 cents to 46 cents.

Screen Shot 2019-10-17 at 8.19.43 AM

With the Conservatives and Liberals both in the 50 cent range, that’s a tidy payoff if you get it right.

Majority Government Market

The market has moved away from a majority government during the writ period.  Now, “any other outcome”, ie. minority government, is trading over 76 cents.  Still, if you are convinced that is the likely outcome, it’s still giving you in the neighbourhood of a 30% return.

Screen Shot 2019-10-17 at 8.21.12 AM

A Liberal majority is trading at 12 cents and a Conservative majority is trading at 10 cents.  Wouldn’t it be nice to get an 8:1 or 10:1 return on your investment.

The market is moving all the time so be quick if you see an opportunity.

The OVERWHELMING CONSENSUS is that there will be a minority government. We know the Holy Trinity – public pollsters, pundits and political scientists – are never wrong and would never lead the market astray!

Uh, so this was the 2013 BC election prediction market:

Screen Shot 2015-10-14 at 11.32.35 AM

I can tell you there was a very sweet payoff.  More than 10:1.

The prediction market at least proves one eternal truth.  There is a sucker born every minute, 19 times out of 20.

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