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Posts Tagged ‘iPredict’

Following on from previous posts, another short update on the iPredict stocks for National and Labour to win the 2014 election.

Daily average trade prices for National broke through the 80c barrier on 26 June, and Labour went below 20c on the same day.  The prices were reasonably stable around those levels for about six weeks until 13 August 2014 when the Dirty Politics scandal broke and National took a steep hit.  Average daily prices for National were below 70c for several days, and bottomed out at about 64c on 22 August, well before Collins’ resignation on 30 August.  The stocks have since rebounded, with National today trading for around 84c, an all-time high.

While there was obvious movement, most likely attributable to fear over the fallout from the Dirty Politics scandal, it was short lived.  As mentioned in the previous post the clock is running out for Labour, which needs to find some sort of game-changer, and there is less and less time left before the election for them to do so.

Graph of prices below:

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Since Dirty Politics was released trading volumes and volatility are up significantly. During the last month there have been over 7,100 trades (National and Labour combined), and total volume was over 115,000.  Since opening on 26 October 2011 the total volumes traded are about 195,000 for National and 173,000 for Labour, so almost 1/3 of total volume traded in the last 3 years has been in the last month.  The stocks definitely aren’t moving about on small volumes.

Weekly volume, 2014 National election victory stock on iPredict.

Weekly volume, 2014 National election victory stock on iPredict.

Weekly volatility, 2014 National election victory stock on iPredict.

Weekly volatility, 2014 National election victory stock on iPredict.

The consensus seems to be that this isn’t going to be a particularly close election.

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Following on from previous posts, another short update on the iPredict stocks for National winning the 2014 election.

Daily average trade prices for National have trended up towards 80c, and Labour down toward 20c.  Prices are as follows:

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

You can see that the prices for National stabalised just above 70c in April and May after earlier peaking at around 76c in mid-March.  I don’t believe that any single event has caused the prices to move.  It’s more a case of running out the clock; Labour needs some sort of game-changer, and there is less and less time left before the election for them to find one.

Weekly trade volumes are up, and now amount to about 1600 shares per week, or $1100 per week.

Daily volume, 2014 National election victory stock on iPredict.

Weekly volume, 2014 National election victory stock on iPredict.

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Following on from previous posts, another update on the iPredict stocks for National winning the 2014 election.

Daily average trade prices are as follows:

Average daily trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

And zoomed in on the last nine months, starting just before Shearer resigned as leader:

Average daily trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Daily average trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

After topping out at $0.78 on 28 March prices for NATIONAL have stabalised in the low 70% range.

Things have not really gotten better for Labour, with the split now fairly stable at 70/30 odds over the last month.  The book is still a little asymmetrical, stronger on the bid side than the ask side, although there is a bit more room for the price to move around than there was previously.

I still think National’s chances to win are priced a little high, but at 70% it’s close enough that I’m not going to bother throwing money at it to try and fix it.

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By popular request: an update of the previous post with data from the last eight days.

Average daily trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Average daily trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

And zoomed in on the last seven months beginning on 20 August, just before David Shearer resigned:

Average daily trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Average daily trade price, 2014 election winner stocks on iPredict for National (blue) and Labour (red).

Things have not got better for Labour, with the split now fairly stable at 70/30 odds over the last week.  What is worse is that the book is very asymmetrical: to short National’s chances of victory down to 60% you would need to drop $1813, whereas to bid them up to 80% would take only $553.  Everybody seems particularly bullish on National’s chances.

To be honest I’m a bit surprised.  In the previous post I said that I don’t see how the stock for National can realistically go higher than 70c prior to the pre-election leaders’ debates, and I stand by that.  I’m not sure why people keep bidding the stock up past 70c, although profit taking could be part of it.  I’ve left a few out of the money asks, but am starting to get a bit over-exposed.

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iPredict is running a contract on National winning the 2014 election.  It was originally launched on 26 October 2011, a month before the 2011 General Election, and has been floating around between $0.40 and $0.60 since then.  It’s only in the last month that the stock has moved significantly beyond $0.60, so it’s worth taking a quick look.  Full trade history is taken from Luke Howison’s excellent API interface for iPredict, and then tweaked with a bit of Excel.

As shown in the graph below, the increase in price since has been pretty constant since it was trading at about $0.45 in October 2013, about a month or so after David Cunliffe was elected leader of the Labour Party.  The average daily price hasn’t dropped below $0.60 since 8 February 2014.

Average daily trade price, 2014 National election victory stock on iPredict.

Average daily trade price, 2014 National election victory stock on iPredict.

In  case you are wondering if this is just a short term fluctuation the answer is probably not.  Daily volumes are shown below.

Daily volume, 2014 National election victory stock on iPredict.

Daily volume, 2014 National election victory stock on iPredict.

Even disregarding the spikes you can still see that trading has increased quite a bit since, again, about mid-October.  In that four month period a total of $19200 changed hands, or about 42% of the $46100 total that has been traded since 2011.  The stock is not just bouncing around on weak liquidity.

It should also be mentioned that bid order book is quite solid: if you wanted to force the evaluation of National’s chances of winning the election back to an even 50/50 then you would need to drop a total of $1420 on 2500 contracts at an average price of $0.57.  Then you’d have to keep it there.  It’s doable, but I don’t fancy your chances.

Intra-day volatility is shown below:

Intra-day volatility, 2014 National election victory stock on iPredict.

Intra-day volatility, 2014 National election victory stock on iPredict.

The most volatile days were 28 January 2014 (David Cunliffe’s State of the Nation speech and “baby bonus”, the new flag debate), 26 October 2011 (contract launch, so meta), 28 November 2011 (first weekday after 2011 General Election), 28 October 2011, and 11 October 2012 (opposition parties’ discussion on “manufacturing jobs crisis” and Labour allegations a video exists of John Key talking to GCSB staff in February about their involvement in the Kim Dotcom case), although most on small volumes.

Daily changes are as follows:

Daily price change, 2014 National election victory stock on iPredict.

Daily price change, 2014 National election victory stock on iPredict.

The biggest absolute daily changes (other than those mentioned above) were 29 April 2012 (general debate over whether David Shearer was the correct choice for Labour Leader (see Dim-Post) and the Banks/Dotcom scandal), 22 April 2012 (a series of bad headlines for National, none of which seemed to have any affect on the polls), 13 October 2012 (“manufacturing jobs crisis”, although interestingly also the day before the MSD/WINZ security leaks exposed by Keith Ng hit the headlines?).

The 28 January 2014 in particular was an interesting day: on the day David Cunliffe was giving his State of the Nation/Baby Bonus speech stocks surged 6.6c from 59.8c to 66.4c on near-record volumes as over $1300 changed hands.  Was this the beginning of the end for Labour’s 2014 election chances?

Finally, this is the point where I’m obliged to point out that if you really think that iPredict has a pro-National bias, and that National actually have a less than a 65% chance of winning the election then you should put your money where your mouth is and go and short some stock.  There is plenty of liquidity there for you to bail out should your views change so you won’t be locked into your position long-term; you can’t use that as an excuse either.

For what it’s worth, I personally I think that barring 4-5 good poll results for Labour the stocks are going to settle at around 65c for the next few months.  I don’t see how they can realistically go higher than 70c prior to the pre-election leaders’ debates.  Having said that, I don’t think one or two good poll results for Labour are going to be enough to move them in the opposite direction either.  Labour’s prospects are looking genuinely shabby compared to four months ago (post Cunliffe election), or even 12 months ago when Shearer was still leader.

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There has been a bit of hysteria the last few days about dire consequences if New Zealand First should be returned to parliament. See PM John Key on Stuff, or the Vote For Change campaign’s highly ignorable press releases, for example.

So what’s going on? A couple of recent polls have the NZF party closing in on the 5% threshold, and the probability of NZF being returned to Parliament has shot up to about 50% on iPredict, from about 15% just over a week ago.

Probability of New Zealand First being returned to parliament according to iPredict, as of evening of 20 November, 2011.

Probability of New Zealand First being returned to parliament according to iPredict, as of evening of 20 November, 2011.

On top of this, NZF leader Winston Peters has made a point of saying he won’t go in to coalition with anybody, or support anybody with supply and confidence, leading observers to assume that if NZF wins seats in parliament this election everything will turn to custard and we will be having another election in the next few months.

So what would actually happen if NZF were returned to parliament?

The current situation.

To figure this out we run a series of simulations, firstly based on the current polling avereges. We call this “Situation #0”. It looks something like this:

Histogram showing the total number of seats National are expected to win in parliament under Situation #0. National are expected to win 65.4 +/- 0.8 (RMS) seats.

Histogram showing the total number of seats National are expected to win in parliament under Situation #0. National are expected to win 65.4 +/- 0.8 (RMS) seats.

Histogram showing the total number of seats Labour are expected to win in parliament under Situation #0.  Labour are expected to win 35.4 +/- 0.8 (RMS) seats.

Histogram showing the total number of seats Labour are expected to win in parliament under Situation #0. Labour are expected to win 35.4 +/- 0.8 (RMS) seats.

Keep in mind that a party would need 63 seats to win a majority:

Histogram showing the number of seats needed to form a majority in Parliament under Situation #0. The winning party or coalition will most probably need 63 seats in Parliament to form a majority.

Histogram showing the number of seats needed to form a majority in Parliament under Situation #0. The winning party or coalition will most probably need 63 seats in Parliament to form a majority.

So National is therefore almost guaranteed an outright majority in the house:

Scenario analysis for Situation #0. The bar graph shows the probabilities for different possible outcomes for a NZ General Election.  The National Party would have a roughly 99.98% chance of governing alone, a roughly 0.02% chance of governing as leader of a National-ACT coalition, and a 0% chance of governing as leader of a National-ACT-United Future coalition. There is a 0% chance that the Maori Party would hold the balance of power in Parliament.

Scenario analysis for Situation #0. The bar graph shows the probabilities for different possible outcomes for a NZ General Election. The National Party would have a roughly 99.98% chance of governing alone, a roughly 0.02% chance of governing as leader of a National-ACT coalition, and a 0% chance of governing as leader of a National-ACT-United Future coalition. There is a 0% chance that the Maori Party would hold the balance of power in Parliament.

So there you have it.

What if NZF makes 5%?

And what would happen if NZF just makes the 5% threshold? Firstly lets simulate this by assuming that NZF takes the same number of votes from National and Labour such that they get exactly 5%. We call this “Situation #1”. Under Situation #1 NZF would win exactly 6 seats. And the other parties?

Histogram showing the total number of seats National are expected to win in parliament under Situation #1. National are expected to win 62.1 +/- 0.8 (RMS) seats.

Histogram showing the total number of seats National are expected to win in parliament under Situation #1. National are expected to win 62.1 +/- 0.8 (RMS) seats.

Histogram showing the total number of seats Labour are expected to win in parliament under Situation #1. Labour are expected to win 33.2 +/- 0.8 (RMS) seats.

Histogram showing the total number of seats Labour are expected to win in parliament under Situation #1. Labour are expected to win 33.2 +/- 0.8 (RMS) seats.

So with NZF taking 1% or so of the vote from each of National and Labour and winning 6 seats, National and Labour would respectively be 3.3 and 2.2 seats worse off. The fallout is not just limited to those two parties either; the Greens, for example, would be 0.5 seats worse off. And who would form the government?

Scenario analysis for Situation #1. The bar graph shows the probabilities for different possible outcomes for a NZ General Election.  The National Party would have a roughly 25.1% chance of governing alone, a roughly 70.5% chance of governing as leader of a National-ACT coalition, and a roughly 4.1% chance of governing as leader of a National-ACT-United Future coalition. There is a 0.3% chance that the Maori Party would hold the balance of power in Parliament.

Scenario analysis for Situation #1. The bar graph shows the probabilities for different possible outcomes for a NZ General Election. The National Party would have a roughly 25.1% chance of governing alone, a roughly 70.5% chance of governing as leader of a National-ACT coalition, and a roughly 4.1% chance of governing as leader of a National-ACT-United Future coalition. There is a 0.3% chance that the Maori Party would hold the balance of power in Parliament.

So if NZF takes votes off National and Labour equally and makes the 5% threshold there is a much reduced chance of National getting a majority, but we would still have a National Prime Minister. Winston Peters wouldn’t be in a position to force another election.

What if the votes come exclusively from National?

And what would happen if NZF just makes the 5% threshold, and takes their extra votes exclusively from current National supporters. We call this “Situation #2”. Under Situation #2 NZF would still win exactly 6 seats, and National would be as follows:

Histogram showing the total number of seats National are expected to win in parliament under Situation #2. National are expected to win 61.2 +/- 0.8 (RMS) seats.

Histogram showing the total number of seats National are expected to win in parliament under Situation #2. National are expected to win 61.2 +/- 0.8 (RMS) seats.

Scenario analysis for Situation #2. The bar graph shows the probabilities for different possible outcomes for a NZ General Election. The National Party would have a roughly 4.4% chance of governing alone, a roughly 69.6% chance of governing as leader of a National-ACT coalition, and a roughly 21.1% chance of governing as leader of a National-ACT-United Future coalition. There is a roughly 5.0% chance that the Maori Party would hold the balance of power in Parliament (with a National-coalition advantage).

So if NZF takes votes solely off National and just makes the 5% threshold there is a much reduced chance of National getting a majority, but we would still most likely get a National Prime Minister, even without taking the Maori Party into consideration. Winston Peters almost certainly wouldn’t be in a position to force another election.

What if NZF makes 7%, and the votes come exclusively from National?

Now lets assume that NZF wins exactly 7% of the vote, with their extra votes coming exclusively from current National supporters. We call this “Situation #3”. Under Situation #3 the results would be as follows:

Histogram showing the total number of seats NZF are expected to win in parliament under Situation #3. NZF are now expected to win 8.7 +/- 0.4 (RMS) seats.

Histogram showing the total number of seats NZF are expected to win in parliament under Situation #3. NZF are now expected to win 8.7 +/- 0.4 (RMS) seats.

Histogram showing the total number of seats National are expected to win in parliament under Situation #3. National are expected to win 58.6 +/- 0.7 (RMS) seats.

Histogram showing the total number of seats National are expected to win in parliament under Situation #3. National are expected to win 58.6 +/- 0.7 (RMS) seats.

Scenario analysis for Situation #3. The bar graph shows the probabilities for different possible outcomes for a NZ General Election.  The National Party would have a 0% chance of governing alone, a roughly 0.4% chance of governing as leader of a National-ACT coalition, and a roughly 4.5% chance of governing as leader of a National-ACT-United Future coalition. There is a roughly 95.5% chance that the Maori Party would hold the balance of power in Parliament (still most likely with a National-coalition advantage).

Scenario analysis for Situation #3. The bar graph shows the probabilities for different possible outcomes for a NZ General Election. The National Party would have a 0% chance of governing alone, a roughly 0.4% chance of governing as leader of a National-ACT coalition, and a roughly 4.5% chance of governing as leader of a National-ACT-United Future coalition. There is a roughly 95.5% chance that the Maori Party would hold the balance of power in Parliament (still most likely with a National-coalition advantage).

So even under the rediculously optimistic scenario of NZF doubling their current support in the next six days, with the new support coming solely off National, the Maori party would still most-likely hold the balance of power in parliament.

And what would the Maori party do? Coalition with National, ACT and United Future? Or coalition with Labour, Greens, Mana and New Zealand First? Even assuming that the latter four parties were all on the same page (unfeasible, given recent statements from their leaders), would the Maori party favour them? Not likely if a three-party right-wing coalition had a numbers advantage over the four-party left-wing coalition. It would be far too easy (politically) for the Maori Party to go into a right-wing coalition, and extract some fairly heavy concessions whilst doing so.

Conclusion.

So, in summary, even if NZF win 7% of the vote, which is unlikely on current polling, the chances of them holding a balance of power and forcing another election are effectively zero. Anybody who suggests otherwise is just being a bit hysterical.

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[Update: Election results available on the Electoral Commission website.]

The 2011 Te Tai Tokerau by-election will be held today. This is the fourth by-election to be held since the 2008 general election, which, whilst not a record, is certainly the most during the last ten terms of parliament.

To date I am aware of only one poll in the electorate, which was the Native Affairs-Baseline poll which had Hone Harawira (Mana Party) on 41%, Kelvin Davis (Labour Party) on 40% and Solomon Tipene (Maori Party) on 15%.

As with the previous 2009 Mount Albert by-election, 2010 Mana by-election and 2011 Botany by-election I have attempted to predict the outcome of the election and the share of the votes won by each of the major or minor NZ political party’s candidates using a Monte Carlo simulation of 50,000 NZ general elections based on recent political polling results. The results for the Te Tai Tokerau by-election are determined using the Uniform National Swing model of electorates. The results of the simulation are shown in the table below, and the results of the 2008 General Election for the Te Tai Tokerau electorate are included for reference.

Simulated results of 2011 Te Tai Tokerau by-election

Table showing simulated results of 2011 Te Tai Tokerau by-election, as calculated on 25 June 2011.

So that is a guaranteed win for Solomon Tipene and the Maori Party!

It goes without saying that the whole prediction is an excercise in futility given that the recently-formed Mana Party didn’t exist at the previous election, and so we don’t have any baseline off which to predict their performance. In fact the discrepancies with the one opinion poll quoted above are so great that, unlike the recent Mana and Botany by-elections, the simulation has practically no predictive power whatsoever. It isn’t even obvious what would count as a “good” result for each of the candidates (although winning the by-election should probably be considered a “good” result). I guess this post therefore serves as another warning against taking the results of Uniform National Swing predictions too seriously.

The only other quantitative predictions for the Te Tai Tokerau by-election that I’m aware of are from New Zealand futures market iPredict, who as of 17:50 (see screen captures below) are giving the Mana Party a 78.0% chance of winning, the Labour Party an 18.7% chance of winning, and any other candidate a 2.0% chance of winning (probabilities do not necessarily have to add to 100% due to the bid/ask spread). iPredict also predict that the Mana Party candidate will win 43% of the vote, the Labour Party candidate will win 41% of the vote, the Maori Party candidate will win 17% of the vote.

I’m not aware of anybody else making quantitative prediction on the results, but if you know of anybody, or if you would just like to take a punt, then feel free to leave a comment below.

iPredict's Te Tai Tokerau by-election winner predictions

Screen capture of iPredict's Te Tai Tokerau by-election winner predictions, as of 17:50 on 25 June 2011.

iPredict's Te Tai Tokerau by-election vote share predictions

Screen capture of iPredict's Te Tai Tokerau by-election vote share predictions, as of 17:50 on 25 June 2011.

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The 2011 Botany by-election will be held today.

As with the 2010 Mana by-election I have attempted to predict the outcome of the election and the share of the votes won by each of the major or minor NZ political party’s candidates using a Monte Carlo simulation of 50,000 NZ general elections held today based on recent political polling results. The results for the Botany electorate are determined using the Uniform National Swing model of electorates. The results of the simulation are shown in the table below, and the results of the 2008 General Election for the Botany electorate are included for reference.

Table showing simulated results of 2011 Botany by-election

Table showing simulated results of 2011 Botany by-election, as calculated on 5 March, 2011.

As long as the Uniform National Swing assumption is correct there is realistically no way that the National candidate can get anything less than 50% of the vote. It is worth mentioning that the model used for the simulation does not know that there is no candidate standing from the Green, Maori, United Future, New Zealand First or Progressive parties, which is why the vote estimates for those parties are non-zero

The usual caveats mentioned in the previous Preditions post for the 2010 Mana By-election still apply, so as always, I’m not going to take responsibility for them if they are significantly out, and conversely I will not be taking any credit if they prove accurate.

As for today’s Botany by-election, the only other predictions of the result of the election that I am aware of are from New Zealand futures market iPredict, who as of 18:30 are giving the National candidate a 100.0% chance of winning and the Labour candidate a 1.0% chance of winning (probabilities do not necessarily have to add to 100% due to the bid/ask spread.) I’m not aware of anybody else making quantitative prediction on the results, but if you know of anybody, or if you would just like to take a punt, then feel free to leave a comment below.

[UPDATE] Results are now available at the Elections NZ website.

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The 2010 Mana by-election will be held today. Unfortunately, we haven’t seen any polling in the electorate, and national-level polling over the past few weeks has been sparse, so it’s not very obvious what to expect.

In spite of the problems mentioned above, I have attempted to predict the outcome of the election and the share of the votes won by each of the major or minor NZ political party’s candidates using a Monte Carlo simulation of 50,000 NZ general elections held today based on recent political polling results. The results for the Mana electorate are determined using the Uniform National Swing model of electorates. The results of the simulation are shown in the table below, and the results of the 2008 General Election for the Mana electorate are included for reference.

Table showing simulated results of 2010 Mana by-election.

Table showing simulated results of 2010 Mana by-election, as calculated on 20 November, 2010.

For reference, similar predictions and results for the 2009 Mt Albert by-election are shown in the table below. The results of the 2009 by-election are of course already known, so you’ll just have to take my word for it that they were not used to cheat by including them as inputs in the simulation.

Table showing simulated results of 2009 Mt Albert by-election.

Table showing simulated results of 2009 Mt Albert by-election, as calculated on 13 June, 2009.

As you can see, the predictions aren’t particularly brilliant. The simulation significantly underestimated the results for the Green Party, and overestimated the results for National. The results for Labour aren’t significantly out, but given that the flow of support was most probably National to Labour and Labour to the Greens, rather than National to the Greens directly, then this was probably just a lucky coincidence.

There are several likely possible causes for discrepancy:

  1. The UNS model for the electorate results is not reasonable.  Empirically, the model has performed well in median seats, but is not very realistic when used in party strongholds such as Mt Albert and Mana, which have historically been safe Labour seats.
  2. There is usually a swing against the government in by-elections relative to that which would be expected from national-level polling, something which the simulation doesn’t take into account.
  3. By-elections tend to attract a different selection of candidates than a general election typically would.
  4. By-elections tend to attract a different selection of voters than a general election typically would, with voter turnout affecting the result in unpredictable ways.

Given the above caveats, the predictions for Mana should be interpreted loosely.  I’m not going to take responsibility for them if they are significantly out, and conversely I will not be taking any credit if they prove accurate.

As for today’s Mana by-election, the only other predictions of the result of the election that I am aware of are from New Zealand futures market iPredict, who as of 15:40 (see screen captures below) are giving the Labour candidate a 96.99% chance of winning and the National a 2.36% chance of winning. iPredict also predict that the Labour candidate will win 46.67% of the vote, the National candidate will win 36.97% of the vote, and all others combined will win 16.80% of the vote. I’m not aware of anybody else making quantitative prediction on the results, but if you know of anybody, or if you would just like to take a punt, then feel free to leave a comment below.

iPredict Mana by-election winner predictions

Screen capture of iPredict's Mana by-election winner predictions, as of 15:40 on 20 November, 2010.

Screen capture of iPredict's Mana by-election vote share predictions, as of 15:40 on 20 November, 2010.

Screen capture of iPredict's Mana by-election vote share predictions, as of 15:40 on 20 November, 2010.

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In a blog post a couple of months ago I discussed the January 2010 Roy Morgan political polling stocks on iPredict. Since then the April stocks have closed, so I’d like to take the opportunity to have a closer look at the results.

As with the January stocks, the data for all trades made on any of the April stocks is available through the history option on the API. Like last time, I have simply copy/pasted all the relevant data from the history function on Luke’s API application into a spreadsheet, and then moved it around a bit to get it into an manageable format. The results are available online in MS Excel format [.xlsx, 752kB]. Please feel free to use or modify the file as you like. The file contains one chart and 13 spreadsheets, please see the previous post for an explanation of the data format.

The first thing that should be pointed out is that at no point did the National stock that eventually closed at $1, NAT.APR10.LOW, trade as the most probable outcome; NAT.APR10.LOW typically traded at 27c ~ 36c below the favoured NAT.APR10.MID and NAT.APR10.HIGH stocks. In fact, the day before closing LOW was trading at just $0.0650, compared to $0.4502 for MID and $0.4174 for HIGH.

This behaviour makes an interesting contrast to many other bundles of stocks on iPredict, for example the bundle on the price of 91 Unleaded petrol, where typically one of the stocks in the bundle will trend towards $1 whilst the rest trend towards $0. Or rephrasing in terms of entropy, the entropy of the bundle of 91 Unleaded petrol stocks will trend towards zero, whilst the entropy of the bundles of Roy Morgan polling stocks will be constrained by a theoretical lower bound. The reason, of course, is that with the petrol stocks the only source of uncertainty is temporal uncertainty, whereas with the polling stocks there is also measurement uncertainty and statistical uncertainty. It is for this reason that the Roy Morgan polling stocks provide such a good laboratory to test the validity of predictions in a futures market.

Once again, the focus of the analysis here will be on the entropy of the political poll bundles over time. For an explanation of entropy in prediction markets please refer to the previous January stocks’ post.

The plot of entropy against time for the April stocks is shown in the first graph below.

Graph showing movement of the total entropy of the 10 political polling stocks

Graph showing movement of the total entropy of the 10 political polling stocks (vertical axis) as a function of date (horizontal axis,) from the opening of the stock on February 19, 2010, up to and including April 8, 2010 - the day before closing. The red series shows the calculated entropy immediately after the last trade of each calendar day (NZT), and the black line shows a linear fit to the data series.

The red series shows the total entropy of the two bundles, and the black line shows a linear fit to the data. In order to help interpret the results the entropies of three reference distributions are also shown in the graph. If the most recent trades of both the National and Labour bundles were $0.03, $0.11, $0.37, $0.37, and $0.12, then the total entropy would take the value of 2.6764, indicated on the graph by the green horizontal line. If the most recent trades were instead $0.02, $0.09, $0.40, $0.40, and $0.09, then the total entropy would take the value of 2.4894, indicated by the yellow horizontal line. Finally, if the most recent trades were $0.01, $0.07, $0.42, $0.42, and $0.08, then the total entropy would take the value of 2.3259, indicated by the purple horizontal line.

So how well did iPredict do? The answer is not so different to that from last time. Firstly, the good news is that on average the total entropy of the ten stocks shows a tendency to decline as the closing date approaches, as indicated by the negative gradient of the black linear fit to the data series. The bad news though is that the slope of the data series itself is not negative-definite, which it should be with only very rare exceptions. We can see a sharp drop and trough from March 15th, followed by a rise and plateau occurring around March 24th; a pattern similar to that seen in the January stocks. Once again it’s not obvious why this pattern is occurring, but it seems to be around the time of release of the penultimate Roy Morgan poll in the series before the stock closes, which was released on March 18. Perhaps some traders are underestimating the statistical error on the results of the penultimate poll, and then assuming that the result of the poll that decides the outcome of the stocks will be approximately the same.

Looking again at the graph, another surprise is the precipitous drop in entropy starting on April 4, 2010, approximately 3 days before the release of the relevant poll. It may just be a coincidence, but the drop looks fairly significant when compared to the daily movements over the proceeding 50 days. A similar pattern was observed two days before closing with the last stocks, and as with last time there were no other polls released around this time that could serve as a reference for the trades, so perhaps it was a trader exercising inside information.

To smooth out some of the day to day fluctuations we have combined the data from the January and April stocks together in the graph below.

Graph showing movement of the average of the total entropy of the 10 political polling stocks

Graph showing movement of the average of the total entropy of the 10 political polling stocks (vertical axis) as a function of days until closing (horizontal axis.) The red series shows the average of the calculated entropy for the JAN10 and APR10 stocks immediately after the last trade of each calendar day (NZT), and the black line shows a linear fit to the data series.

The red series shows the total entropy of the two bundles, and the black line shows a linear fit to the data. The horizontal axis now represents the number of days before the stock closes. The green and yellow horizontal lines are those from the above graph corresponding to entropies of 2.6764 and 2.4894, respectively. The additional two reference entropies are given by the blue (2.9673) and orange (2.8057) lines.

Averaging the two different time periods smooths out some of the fluctuations, but once again we can still see the dip, trough and rise lasting from approximately 30 days before closing until approximately 15 days before closing. This discrepancy indicates an interesting strategy for beginners who want to take part in the stocks: simply wait until three weeks before closing, and if the highest stock in either of the National and Labour bundles is priced over about 45c then sell it and buy the rest of the bundle. Other than the non-negative definite changes in entropy, though, the trading behaviour seems fairly reasonable.

In conclusion, traders at iPredict did a fairly reasonable job with the second set of Roy Morgan Poll polling stocks in the new format, which closed in April, although they did not correctly pick the stock in the National bundle that would eventually close at $1 at any point during the period of trading.

Analogous polling stocks for the first Roy Morgan poll to be released in June have also closed, and stocks for the first poll to be released in August will be closing soon, so I will do an similar analysis on those results and publish it here in the near future.

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