Monday, 25 June 2018

Hedge funds shorting the referendum? The thing it's short on is fact

On the face of it, the Bloomberg article is a bombshell. It's not so much that it names Nigel Farage but more that it points the finger at the market research industry:
Hedge funds aiming to win big from trades that day had hired YouGov and at least five other polling companies, including Farage's favorite pollster. Their services, on the day and in the days leading up to the vote, varied, but pollsters sold hedge funds critical, advance information, including data that would have been illegal for them to give the public. Some hedge funds gained confidence, through private exit polls, that most Britons had voted to leave the EU, or that the vote was far closer than the public believed—knowledge pollsters provided while voting was still underway and hours ahead of official tallies. These hedge funds were in the perfect position to earn fortunes by short selling the British pound. Others learned the likely outcome of public, potentially market-moving polls before they were published, offering surefire trades.
The article mentions two polling companies by name - YouGov and Survation - and suggests that they conducted "private exit polls" that were shared with hedge fund businesses as a means of 'shorting' the Pound during the evening. The article also hints that the polls running up to the referendum were foxed in some manner. First let's get the exit poll thing cleared up:

An election exit poll is a poll of voters taken immediately after they have exited the polling stations. Unlike an opinion poll, which asks for whom the voter plans to vote, or some similar formulation, an exit poll asks for whom the voter actually voted.
It was widely reported in the run up to the referendum that there wouldn't be any exit polling (although there were suggestions that private polls were being commissioned) because of the methodological difficulties - with no past voting behaviour getting a balanced sample would be very difficult:
The problem they face is the same as that faced by the broadcasters: without a baseline it is hard – and expensive – to construct a sample of polling stations that is representative of the country as a whole. And they won’t know if they are right until the actual results start to flow in from about 12.30am on Friday.
The YouGov poll reported by Sky News at 10.02pm wasn't an exit poll but, as the Bloomberg article makes clear, an opinion poll conducted on the same basis and with the same sampling as similar polls in the run up to the referendum (a YouGov poll reported 51/49 Remain/Leave on 22 June and Survation reported Remain leads in two slightly earlier polls). The poll result announced (I think mistakenly as if it were an exit poll) by Sky News was pretty much in line with overall polling over the previous week. It is worth noting that eight of the ten polls prior to the murder of Jo Cox MP showed a Leave majority whereas only two of the ten polls after her death did so. If the money men commissioned any polling it probably won't have been exit polls because of the sampling problem - it will have been phone or online (most likely online).

There had been a slight improvement in exchange rates in the days prior to the referendum, something that was entirely in line with the increased expectation that Remain would win the referendum - speaking personally, I switched the TV on that evening expecting to see a reasonably comfortable win for the pro-EU campaign. There's a legitimate question as to why the polls were so wrong (although pollsters will point out that the difference between 52/48 and 48/52 really isn't large in statistical terms) but the Bloomberg allegation (and the hint at the end of the article) is very serious as it suggests polling companies are colluding with investors to game election results.

For all the shock horror nature of the report, I'm inclined to the view that nobody has fixed anything - some private polling will have given different answers (perhaps more in line with earlier polling) but that's all. The hedge fund folk no more knew the result than did any of the rest of us, including the people at Sky TV and Leave.EU.


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