The behaviour of betting and currency markets on the night of the EU referendum

Tom Auld and Oliver Linton
Additional contact information
Tom Auld: Institute for Fiscal Studies

No CWP01/18, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: We study the behaviour of the Betfair betting market and the sterling/dollar exchange rate (futures price) during 24 June 2016, the night of the EU referendum. We investigate how the two markets responded to the announcement of the voting results. We employ a Bayesian updating methodology to update prior opinion about the likelihood of the final outcome of the vote. We then relate the voting model to the real time evolution of the market determined prices. We find that although both markets appear to be inefficient in absorbing the new information contained in vote outcomes, the betting market is apparently less inefficient than the FX market. The different rates of convergence to fundamental value between the two markets leads to highly profitable arbitrage opportunities.

Keywords: EU Referendum; Prediction Markets; Machine Learning; Efficient Markets Hypothesis; Pairs Trading; Cointegration; Bayesian Methods; Exchange Rates (search for similar items in EconPapers)
Date: 2018-01-10
New Economics Papers: this item is included in nep-cmp, nep-eec and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.ifs.org.uk/uploads/CWP011818.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://www.ifs.org.uk/uploads/CWP011818.pdf [302 Found]--> https://ifs.org.uk/uploads/CWP011818.pdf)

Related works:
Journal Article: The behaviour of betting and currency markets on the night of the EU referendum (2019)
Working Paper: The behaviour of betting and currency markets on the night of the EU referendum (2018)
Working Paper: The Behaviour of Betting and Currency Markets on the Night of the EU Referendum (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ifs:cemmap:01/18

Ordering information: This working paper can be ordered from
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE

Access Statistics for this paper

More papers in CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE. Contact information at EDIRC.
Bibliographic data for series maintained by Emma Hyman ().