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katastrofa
Topic Author
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Joined: August 16th, 2007, 5:36 am
Location: Alpha Centauri

### Bookies on Brexit

I've been looking at Brexit odds from various bookmakers and the majority pays several times more for the "leave" bid, e.g. http://www.oddschecker.com/politics/bri ... -resultI'm wondering if these numbers include hedging against the potential GBP drop. Do you know any bookmakers taking bets in other currencies?

Martinghoul
Posts: 3255
Joined: July 18th, 2006, 5:49 am

### Bookies on Brexit

If I am not mistaken, Betfair allows one to bet in USD...

bearish
Posts: 4967
Joined: February 3rd, 2011, 2:19 pm

### Bookies on Brexit

That's very similar to Eurozone sovereign CDS back in the crisis, when you could compare quotes denominated in EUR and USD and try to back out an implied exchange rate jump on default (relatively small for Greece, moderate for other peripherals, and really big for Germany). You have to make some assumptions though...

Martinghoul
Posts: 3255
Joined: July 18th, 2006, 5:49 am

### Bookies on Brexit

QuoteOriginally posted by: bearishThat's very similar to Eurozone sovereign CDS back in the crisis, when you could compare quotes denominated in EUR and USD and try to back out an implied exchange rate jump on default (relatively small for Greece, moderate for other peripherals, and really big for Germany). You have to make some assumptions though...Italy was the most interesting one of the lot, in this context, if memory serves...

Orbit
Posts: 492
Joined: October 14th, 2003, 5:34 pm

### Bookies on Brexit

I saw a video today of Farage buying Brexit at 5-2 odds at Ladbrokes. He paid in GBP, not sure if they offer USD trade or what. If they won't, I'll stand behind you in line and my market will be fair. I promise.

daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

### Bookies on Brexit

QuoteOriginally posted by: OrbitI saw a video today of Farage :)an acquired taste
knowledge comes, wisdom lingers

Martinghoul
Posts: 3255
Joined: July 18th, 2006, 5:49 am

### Bookies on Brexit

QuoteOriginally posted by: OrbitI saw a video today of Farage buying Brexit at 5-2 odds at Ladbrokes. He paid in GBP, not sure if they offer USD trade or what. If they won't, I'll stand behind you in line and my market will be fair. I promise. :)Was he holding a pint, while placing his bet?Rhetorical question, obviously.

Orbit
Posts: 492
Joined: October 14th, 2003, 5:34 pm

### Bookies on Brexit

He does enjoy a pint, from what I can tell

Alan
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### Bookies on Brexit

There's something I don't get about these Brexit odds. Assume a payout in GBP, so as to not confuse it with the exchange rate issue. Polls seem to be closer to 50/50 than bookie odds, and as noted by katastrofa the bookie odds show a probability of exit significantly less than 50%.This seems to be still true today, for example here Now in general, we can perhaps think of poll probabilities as real-world probabilities ($P = P_{exit}$) and the bookie probabilities as market pricing probabilities ($Q = Q_{exit}$). So we apparently have $Q < P$. As the event carries systematic risk, we certainly expect $P \not= Q$.But, a priori, do you expect $Q > P$ or $Q < P$? The order $Q < P$ would not have been my guess.Thoughts?
Last edited by Alan on June 16th, 2016, 10:00 pm, edited 1 time in total.

Paul
Posts: 9461
Joined: July 20th, 2001, 3:28 pm

### Bookies on Brexit

There are more people betting on Brexit that Remain. But the Remain bets are larger. Obviously the odds at the bookies, $Q$, reflect the total £, but maybe the number of bets represent the real, $P$, probabilities! I hope so!P

Alan
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### Bookies on Brexit

OK, but do you see my point? Regardless of the vote outcome, the UK equity markets will react: call the reaction (percentage) jump $\Delta S$. So, $Q < P$ suggests the equity market jump will be less negative (or more positive?) if the outcome is Leave vs Remain.In other words, $Q < P$ says to me that $\Delta S|L > \Delta S|R$, where L=Leave outcome, R=Remain outcome, and "|" means "conditional on".Otherwise, if $\Delta S|L < \Delta S|R$, the Leave bet would serve an insurance function and people would bid it up until $Q > P$,just like bidding up the price of an out-of-the-money SPX put. For example, to put some numbers on it, my a priori would have been somethingin the ballpark of $\Delta S|L \approx -5\%$ and $\Delta S|R \approx 0$ (status quo), leading to my puzzle. Or am I missing something?
Last edited by Alan on June 16th, 2016, 10:00 pm, edited 1 time in total.

Paul
Posts: 9461
Joined: July 20th, 2001, 3:28 pm

### Bookies on Brexit

Why are you connecting the two markets?P

Alan
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Location: California
Contact:

### Bookies on Brexit

Well, I mentioned 3 markets: Brexit derivatives (bookie market), UK equities, and SPX derivatives (puts).I am trying to infer what the bookie market (relative to the polls) implies for UK equities.My intuition comes from the case of SPX puts.

Paul
Posts: 9461
Joined: July 20th, 2001, 3:28 pm

### Bookies on Brexit

Wouldn't that only work if someone were trying to arbitrage between them? Otherwise they can all go their merry ways. The betting will be tiny compared with financial markets, so you can't hedge the markets. And bettors generally aren't sophisticated to go the other way. And the bookies don't care, as long as they can adjust the odds. (Assuming there's enough betting in both directions, which it looks like there is.) And the markets are statistical whereas the betting isn't (since they can perfectly hedge. So I would assume there's not much info.Except for my observation about the numbers versus the money. Follow the numbers not the money!P

Martinghoul
Posts: 3255
Joined: July 18th, 2006, 5:49 am

### Bookies on Brexit

Q < P is not unreasonable, given the structure of the mkts and the polls... While we can leave the gory details for later, suffice it to say that this is what prevailed during the Scottish Neverendum.
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