Thursday, November 6, 2008


There's a 12 point difference in the predicted probability of a National-led coalition, using my spreadsheet, if we compare probabilities at high bid for National and low ask for Labour as compared to low ask for National and high bid for Labour. The price spread in the vote share market corresponds to a 12 percentage point difference in the probability of a National-led coalition (all other stocks evaluated at high bid).

If National gets 48.5% of the vote (high bid) and Labour gets 34.68 (high bid), we expect National + Act + UF = 63 in a 121-seat Parliament and an 85% probability of forming government.

If National gets 49.17% (low ask) and Labour gets 34.68, National + Act + UF = 64 in a 121-seat Parliament and a 95% probability of forming government.

If we evaluate both at the midpoints of the bid-ask spread, we get an 83% probability of a National coalition.

I wonder why moves in the VS market aren't matched by larger moves in the PM markets. Somebody who thinks National's true vote share is likely to be upwards of 49% would do much better by going long on PM markets than by correcting the VS markets.


JC said...

and in the QV stocks why is auckland at 70% when the latest information puts CHCH and AK at the same percentage decrease, and previous months had CHCH ahead.

Latest barfoots data shows a price increase in AK

Crampton said...

Any links on Barfoot?

JC said...

slightly hairy but:

Crampton said...

JC: I have little sense on what property prices are doing, especially one city relative to another. But if you think the prices are currently out of whack, make some moves now to right them. Most folks are going to have a fair bit of cash released into their portfolios after the election's called and that cash will partially move to fix problems in other markets.

By way of example, prices in the VOTE markets looked pretty far out, then the US election was called and folks had cash again, and then the VOTE markets moved to make sense.

Anonymous said...

Clearly going to be neck and neck between Ch-ch and Auckland, Wellington out of the race - Wellington economy is outperforming thanks to Auntie Helen.

I think that people are drawn to Auckland by intuition. I was initially. But it is important to note that in this contract you are comparing Auckland "region" with Christchurch "City". Auckland "City" is doing worse than Christchurch City as you expect but much of Auckland region is Manakau, Rodney etc...hence why Christchurch was "leading" in September and must be a 50/50 bet to still be there at year-end. I'm long Christchurch as a result.

QVNZ data for October is released midnight Sunday so there will be more data to trade off.