Betting on Brexit: gamblers predicted referendum result

betting on brexit
© iStock/Duncan_Andison

A new study from the University of Cambridge has shown gamblers betting on Brexit predicted the outcome of the UK’s 2016 referendum before financial markets did.

The study, published in the International Journal of Forecasting, compared betting activity on the Betfair website with the pound sterling-dollar exchange rate from the time polls closed on the night of the referendum, 23 June 2016. The results showed Betfair users betting on Brexit shifting toward a Leave majority by 3AM; while foreign exchange markets did not make the same shift until 4AM. The BBC began predicting a Leave victory at around 4:40AM.

Dr Tom Auld, lead author of the study into betting on Brexit, said: “Clearly, punters trading on Betfair are a different group of people to those dealing in FX [the foreign exchange market] for international finance. It looks like the gamblers had a better sense that Leave could win, or that it could at least go either way. Our findings suggest that participants across both markets suffered a behavioural bias as the results unfolded. Initially, both traders and gamblers could not believe the UK was voting to leave the EU, but this disbelief lingered far longer in the city.”

The alleged decision of 52 per cent of the UK’s voters to leave the EU has led to more than two years of political turmoil, with politician, pundits and members of the public in dispute over the terms and schedule of the UK’s withdrawal from the EU. With only 77 days until the set withdrawal date, there have been increased calls for Brexit to be delayed or for a second referendum. If this occurs, it may be possible to gauge the outcome by watching betting on Brexit before the markets or the news.

Dr Auld added: “Using data publicly available at the time we show that the financial markets were very inefficient and should have predicted Brexit possibly over two hours before they actually did. If there is a second referendum, the vote should be better understood by markets – in line with a theoretical concept called the adaptive markets hypothesis. Studies such as ours will mean that market participants will be primed to profit from any possible opportunities and inefficiencies.”

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