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Auld, T. and Linton, O.

The Behaviour of Betting and Currency Markets on the Night of the EU Referendum

International Journal of Forecasting

Vol. 35(1) pp. 371-389 (2019)

Abstract: We study the behaviours of the Betfair betting market and the sterling/dollar exchange rate (futures price) during 24 June 2016, the night of the EU referendum. We investigate how the two markets responded to the announcement of the voting results by employing a Bayesian updating methodology to update prior opinion about the likelihood of the final outcome of the vote. We then relate the voting model to the real-time evolution of the market-determined prices as the results were announced. We find that, although both markets appear to be inefficient in absorbing the new information contained in the vote outcomes, the betting market seems less inefficient than the FX market. The different rates of convergence to the fundamental value between the two markets lead to highly profitable arbitrage opportunities.

Keywords: EU referendum, Prediction markets, Machine learning, Efficient markets hypothesis, Pairs trading, Cointegration, Bayesian methods, Exchange rates

Author links: Oliver Linton  

Publisher's Link: https://doi.org/10.1016/j.ijforecast.2018.07.014

Open Access Full Text: https://www.repository.cam.ac.uk/handle/1810/285954

Open Data link: https://www.sciencedirect.com/science/article/pii/S0169207018301328#sec3



Cambridge Working Paper in Economics Version of Paper: The Behaviour of Betting and Currency Markets on the Night of the EU Referendum, Auld, T. and Linton, O., (2017)

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