— Mike Smithson (@MSmithsonPB) May 7, 2015
By Aidan Nutbrown, senior trader at Sporting Index with overall responsibility for the firmâ€™s Election markets
The regulars of this parish will no doubt be very familiar with our hostâ€™s frequent highlighting of the difference in Sporting Indexâ€™s Conservative seats price and our Labour seats price. Why is it that this market seems so different from most pollstersâ€™ forecasts or the many predictions being made by the new and growing breed of academics?
The answer lies in not where our prices begin life but in what drives them after release. A brief explanation of these two aspects of how our pricing works may serve to show how and why we frequently take a different line to the mass of predictions, and why we are often happy to lay chunky bets that seem at odds with the common (or indeed educated) view.
Our prices are originated by our traders, working in this respect as â€˜market makersâ€™. If this was say football we would effectively be sports statisticians. But when it comes to elections it is arguable that there is little in the way of a relevant data set to draw upon. We can take polls and turn, for example, Lord Ashcroftâ€™s â€˜snapshotsâ€™ into forecasts. We can, and do, run sophisticated Monte Carlo simulations, studying uncertainty and things such as leptokurtic distributions. However our model outputs are only ever as good as our inputs. We sometimes get these initial prices wrong â€“ note for example the movement in our Turnout Percentage price. Often these early moves are driven by the very well-informed readers of this website.
The key difference though comes in the next stage of how we manage our prices. Unlike most people making these seat predictions, ours are available to wager on. And it is no secret that we are taking very sizeable bets on this election.
It is the weight of money that really now drives the prices and our intention is, as with most traditional bookmaking, to try to balance our books.
So we move from being market makers to traders, attempting to generate as much business as possible on both buy and sell sides of the market. So we move our prices and there is a much publicised graph of how our Con and Lab seats have moved in the past few weeks, with a hugely significant upward trend for the Tories. But just a month ago our predictions were only marginally different to the seats distribution implied by Poll of Polls.
However the trend in modern sports betting is rarely to end up with a balanced book, and if not intentionally we will usually find ourselves cheering on or booing one or other outcome â€“ Tory seats will not be welcome at SPIN HQ in the early hours of Friday morning! So believe me when I say we welcome business that seems against the grain, and most readers of this website will be clued up enough to appreciate where there are significant differences in our prices and the accepted wisdom of psephology. Just look at our current SNP level versus many respected forecast of around 52 Nat seats. Believe us when we say we are as surprised by some of our prices as you are!
During the course of election night we will be taking these concepts to the max. Weâ€™ll be trading the seats markets â€“ our most liquid â€“ live and in-running, updating them as often and as late as we feasibly can, together with a selection of other core markets. If itâ€™s some of the other markets that interest you then do check our websites for the timings of when each is due to close. Some such as turnout will be late morning, others such as individual seats will be mid-afternoon, and from 10pm just like everyone else we will be focusing on seats, trading live until the death, whenever that might beâ€¦