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tw
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Joined: May 10th, 2002, 3:30 pm

### Bookies on Brexit

QuoteOriginally posted by: PaulThere 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!PHow do you know the numbers of bettors? Especially of each side.

tw
Posts: 1174
Joined: May 10th, 2002, 3:30 pm

### Bookies on Brexit

QuoteOriginally posted by: AlanOK, 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?Why do you look at SPX? Do the US markets care enough about Brexit? (IMO they should)One think we looked at was 1week vs 2week maturities for GBP currencies vs. those the SPX.The spread to the expiry before and after the referendum had an obvious spike for UK markets but SPX had no real Brexit effect (this was at the beginning of this week).This was interesting as the rise up in VIX has accounted for by some as a brexit thing which has later maturities.

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

### Bookies on Brexit

QuoteOriginally posted by: twQuoteOriginally posted by: PaulThere 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!PHow do you know the numbers of bettors? Especially of each side.I think some of the shops (e.g. William Hill and Ladbrokes) release some broad statistics such as these... I am pretty sure that you can't get this info for Betfair.

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

### Bookies on Brexit

QuoteOriginally posted by: PaulThere 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!PLet's not forget that, apart from the size issues, bets, and thus the bookies' odds, represent what punters think about other peep's votes on the day. That's quite different to the odds given by the polls which represent what people think about their own votes at the time of the poll.

Paul
Posts: 10771
Joined: July 20th, 2001, 3:28 pm

### Bookies on Brexit

QuoteOriginally posted by: tw QuoteOriginally posted by: PaulThere 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!PHow do you know the numbers of bettors? Especially of each side.I don't. I just saw a news story that was trying explain the betting.P

Paul
Posts: 10771
Joined: July 20th, 2001, 3:28 pm

### Bookies on Brexit

QuoteOriginally posted by: Martinghoul QuoteOriginally posted by: PaulThere 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!PLet's not forget that, apart from the size issues, bets, and thus the bookies' odds, represent what punters think about other peep's votes on the day. That's quite different to the odds given by the polls which represent what people think about their own votes at the time of the poll.Good point. But my gut instinct is that the vast majority of people will usually bet the way they want the outcome. Do people bet that their team will lose? Unless it's rigged, haha!P

Alan
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### Bookies on Brexit

QuoteOriginally posted by: twQuoteOriginally posted by: AlanOK, 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?Why do you look at SPX? Do the US markets care enough about Brexit? (IMO they should)One think we looked at was 1week vs 2week maturities for GBP currencies vs. those the SPX.The spread to the expiry before and after the referendum had an obvious spike for UK markets but SPX had no real Brexit effect (this was at the beginning of this week).This was interesting as the rise up in VIX has accounted for by some as a brexit thing which has later maturities.@tw,I mentioned SPX out-of-the-money puts as simply an analogy, not directly related to Brexit. For example, statistically, the $P$-probability of a >20% drop in the SPX over some short-time horizon is quite small by any reasonable analysis.(This is true all the time, at least post-1987). But the $Q$-probability of such a drop, as inferred from the put premiums, is persistently much larger. So $Q \gg P$. This is not unreasonable when most market participants are risk-averse; indeed, if you didn't find that, at a minimum, $Q > P$ (but not necessarily $\gg$), something would be very wrong with our understanding of risk premiums. @Paul,If the betting is tiny, then agree -- I suppose it can do whatever it wants.On the other hand, not so sure people will so uniformly bet their desired outcome. People do buy fire insurance! As a US resident, I can't bet and don't feel the need to hedge this event anyway.But if I were in the UK, maybe it would look like a bargain equity-drop hedge -- although I suspect the commissions dilute that a lot.
Last edited by Alan on June 17th, 2016, 10:00 pm, edited 1 time in total.

katastrofa
Topic Author
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Location: Alpha Centauri

### Bookies on Brexit

QuoteOriginally posted by: PaulQuoteOriginally posted by: Martinghoul QuoteOriginally posted by: PaulThere 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!PLet's not forget that, apart from the size issues, bets, and thus the bookies' odds, represent what punters think about other peep's votes on the day. That's quite different to the odds given by the polls which represent what people think about their own votes at the time of the poll.Good point. But my gut instinct is that the vast majority of people will usually bet the way they want the outcome. Do people bet that their team will lose? Unless it's rigged, haha!PI think anticipated utility dominates in bookie market -- people generally tend to overestimate rare large events (which is completely the opposite to financial markets, right?). The anticipated utility models say that it's because people are stupid, risk-junkies (betting on 100-1 dark horses) or risk-paranoid (over-insuring stuff), while missing the fact that the life of a single individual is not statistics, so to speak, memory of the system, etc... Anyway, I believe it's similar to Kahneman behavioral theories.

tw
Posts: 1174
Joined: May 10th, 2002, 3:30 pm

### Bookies on Brexit

QuoteOriginally posted by: katastrofaQuoteOriginally posted by: PaulQuoteOriginally posted by: Martinghoul QuoteOriginally posted by: PaulThere 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!PLet's not forget that, apart from the size issues, bets, and thus the bookies' odds, represent what punters think about other peep's votes on the day. That's quite different to the odds given by the polls which represent what people think about their own votes at the time of the poll.Good point. But my gut instinct is that the vast majority of people will usually bet the way they want the outcome. Do people bet that their team will lose? Unless it's rigged, haha!PI think anticipated utility dominates in bookie market -- people generally tend to overestimate rare large events (which is completely the opposite to financial markets, right?). The anticipated utility models say that it's because people are stupid, risk-junkies (betting on 100-1 dark horses) or risk-paranoid (over-insuring stuff), while missing the fact that the life of a single individual is not statistics, so to speak, memory of the system, etc... Anyway, I believe it's similar to Kahneman behavioral theories.I know a few ppl who do "emotional hedging" i.e. bet against their team

sleat
Posts: 4
Joined: July 8th, 2016, 2:45 pm

### Bookies on Brexit

I would not assume the polls are correct. One reason is people are not afraid of giving their opinion in a poll (I don't like the EU so I will answer "Leave") but they might be scared of voting for Brexit on the day (I don't like the EU but I am scared of losing my job/economic meltdown/destruction of the fabric of the universe) if I vote to leave. Fear of the unknown. If you call it the fear factor you could probably derive some pretty good equations around it and produce much better polls.

katastrofa
Topic Author
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Location: Alpha Centauri

### Bookies on Brexit

I don't think anyone here assumes that they are correct. We are just wondering how to model the information they contain.

tw
Posts: 1174
Joined: May 10th, 2002, 3:30 pm

### Bookies on Brexit

QuoteOriginally posted by: sleatI would not assume the polls are correct. One reason is people are not afraid of giving their opinion in a poll (I don't like the EU so I will answer "Leave") but they might be scared of voting for Brexit on the day (I don't like the EU but I am scared of losing my job/economic meltdown/destruction of the fabric of the universe) if I vote to leave. Fear of the unknown. If you call it the fear factor you could probably derive some pretty good equations around it and produce much better polls.How polls work in the UK:Question"In the upcoming General Election will you be voting for five more years of Tory oppression, who seekto undermine public services, suppress workers rights and buy off the middle classes withoffensive tax cuts while your fellow country men suffer?"Response"Who me? No fear, I am voting Lib Dem for a fairer Britain"OutcomeHuge Tory majorityQuestion"In the upcoming referendum for Scottish independence, will you be voting to cast off300 years of English oppression to forge a new identity in a brave independent countrywho will will not succumb to the threats of the Sassenachs to take their lousy administrative andfinancial service jobs south of the border and not let us use their sterling?"Response"Aye man. Here's to true freedom. Spirit of Braveheart etc"OutcomeBig swing away from independenceQuestion"How will you vote in this monumental referendum, to take back control of the UKfrom the faceless Brussels bureaucrats and ignore the baseless threats ofeconomic downturns, massive relocation of firms, huge unemployment , administrative paralysis,restriction of access to vital trading markets and follow the noble and unselfinterestedleadership of Michael Gove, Boris Johnson, Iain Duncan Smith?"Where does that extrapolate to?

sleat
Posts: 4
Joined: July 8th, 2016, 2:45 pm

### Bookies on Brexit

Katastrofa, maybe I wasn't clear, my view is different from the original, not unreasonable, assumption "in general, we can perhaps think of poll probabilities as real-world probabilities". I assert that the same person sometimes expresses a different view in a poll (where they think their answer doesn't influence the outcome) from a vote (where they believe it does). This is one (not the only) reason why votes may differ from polls. And that this factor will probably support the Remain vote tomorrow...

cosmologist
Posts: 640
Joined: January 24th, 2005, 8:08 am

### Bookies on Brexit

Congratulations to Brits. Brave choice. Fortune favors the brave and the risk takers tend to get a bigger return. As simple as that.In my view, the leave brigade just put a stop to endless exploitation of their country.Angela Merkel, The lady with a dream of a Peace Nobel (that is my view) , ensured that couple of million votes went to the Leave side. I think, if my 100+ years of experience with a CERTAIN section of humanity is correct, Brits just saved themselves from a lot of miseries.All these threat of job-loss, loss of trade blah blah are just plain bull****. Good days are ahead, trust me.

Cuchulainn
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Location: Amsterdam
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### Bookies on Brexit

QuoteOriginally posted by: cosmologistCongratulations to Brits. Brave choice. Fortune favors the brave and the risk takers tend to get a bigger return. As simple as that.In my view, the leave brigade just put a stop to endless exploitation of their country.Angela Merkel, The lady with a dream of a Peace Nobel (that is my view) , ensured that couple of million votes went to the Leave side. I think, if my 100+ years of experience with a CERTAIN section of humanity is correct, Brits just saved themselves from a lot of miseries.All these threat of job-loss, loss of trade blah blah are just plain bull****. Good days are ahead, trust me.Waffle. The 'leave' voters were not brave, they were brainwashed by little demi-gods. Thy were mostly the less educated, possibly unemployed outside London. It was not the EU that destroyed UK, it happened much earlier in the 70's and then Thatcher destroyed British industry. The emotions that the leave politicians played on were divisive, negative to a bygone era. It is now 2016, not 1816.Who will now work in the factories? The locals not, that's for sure.BTW Scotland and Nothern Ireland voted to remain. I foresee an independent Scotland and a united Ireland based on economic rationale.QuoteGood days are ahead, trust meSure. More waffle
Last edited by Cuchulainn on June 24th, 2016, 10:00 pm, edited 1 time in total.
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