PA ANALYSIS: Are Brexit betting odds actually reliable?

Added 17th June 2016

Betting odds have emerged as a coveted predictor of the outcome of the UK’s EU referendum. But are they actually as reliable as some fund managers suggest?

PA ANALYSIS: Are Brexit betting odds actually reliable?

Several fund managers speaking at Expert Investor’s investor forums in the past couple of months have claimed Brexit is much less likely to happen than neck-and-neck opinion polls suggest by pointing at the bookmaker’s odds, which were until very recently firmly in favour of a Remain outcome of the upcoming Brexit referendum.

But odds have narrowed considerably over the past two weeks or so, suggesting Brexit is now a much more likely outcome of the vote. Bookmakers were implying a 15% probability of Brexit just several weeks ago, but this has risen to 33% to 43% now, depending on the bookmaker.

However, as it is unlikely that lots of voters have suddenly changed camps in such a short time period, this shift has also impacted bookmakers’ credibility. In fact, their odds should be taken with a large pinch of salt, according to Nikko AM, since “betting odds are largely dictated by weight of money rather than a sophisticated analysis at betting companies themselves”, said Simon Down, senior portfolio manager at Nikko AM.

Follow the money?

Information provided by Ladbrokes, a bookmaker, shows that 84% of bets have been placed on Brexit in the first week of June, compared to just a third in the last week of April. This, rather than any sort of polling efforts, has led to the narrowing of odds observed in recent weeks.

The average Ladbrokes bet for Remain is also about six times the size of the average Leave bet. “The average amount for Remain betting is likely to be heavily biased by a number of very large bets,” said Down.

This implies that the odds could have been driven down to unrealistically low levels by big Remain bets in previous months, while in fact the real possibility of Brexit has always been higher than the bookmakers suggested.

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About Author

Tjibbe Hoekstra

Senior Reporter

Tjibbe joined Expert Investor as a senior reporter in March 2014. Before moving to London he worked as a financial news reporter for various news outlets in Amsterdam, including Reuters and ANP, the main news agency in the Netherlands. He also worked for Fondsnieuws, a website and magazine for finance professionals in the Netherlands. Tjibbe holds a MSc in Public Administration and a post-graduate diploma in Journalism.



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