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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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