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

Tom Auld and Oliver Linton ()

International Journal of Forecasting, 2019, vol. 35, issue 1, 371-389

Abstract: We study the behaviours 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 by employing 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 as the results were announced. We find that, although both markets appear to be inefficient in absorbing the new information contained in the vote outcomes, the betting market seems less inefficient than the FX market. The different rates of convergence to the fundamental value between the two markets lead 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: 2019
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Related works:
Working Paper: The behaviour of betting and currency markets on the night of the EU referendum (2018) Downloads
Working Paper: The behaviour of betting and currency markets on the night of the EU referendum (2018) Downloads
Working Paper: The Behaviour of Betting and Currency Markets on the Night of the EU Referendum (2017) Downloads
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