National Wins Leaders' Debate

National's chances of leading the next government increased by 5.1% last night according to iPredict traders, handing John Key a decisive victory over Helen Clark in the first leaders' debate.

Labour's re-election chances fell 4.4%.

By the end of the debate, Labour was a 30% likelihood of leading the next government, a significant increase from its position a week ago where it was tracking in the low twenties. However, this morning PM.LABOUR is trading down at 25 cents. Last week's gains have been largely undone.

As in share markets, price movements in prediction markets are caused by the arrival of new information and outcomes which are different from expectations. TVNZ commentators after the debate said that while the Prime Minister performed well, this was to expected, whereas Key in his first leaders' debate outperformed expectations.

Print media commentators generally agree, Audrey Young saying

She had by far the best campaign launch on Sunday but he wiped the floor on the debate.

John Armstrong:

While there was little to separate the pair in a pretty even contest, John Key has to be declared the winner of tonight’s debate…She was as rock solid as always, but predictable.

Fran O'Sullivan, however, gave the debate to Clark:

Clark scored best on the issue du jour - the international credit crisis. She has a post-election plan. Key doesn't.

Traders on iPredict are unequivocal: National's chances of an election victory increased sharply at Labour's expense, and on this measure victory in the first leaders' debate is National's.

Click on the chart for a larger view.

Who Will Win The Leaders' Debate?

One of the great things about prediction markets is their real-time evaluation of news events. Price changes in PM.LABOUR or PM.NATIONAL in response to news is like running a real-time poll. And a prediction market can tell you the political value of that news - a statistic not available from any other source, certainly not traditional polling or even, arguably, The Worm.

In view of that, iPredict will be measuring the performance of leaders in tonight's debate in the way that matters most: who's election chances go up during the debate, and whose goes down? That is, ultimately, the measure of any politician's performance.

Following the lead from InTrade, we will use the following method for determining the debate winner: the largest increase in absolute likelihood of being elected government. The before and after values will be calculated as the average market price for PM.NATIONAL and PM.LABOUR in the thirty minutes before the debate commences and the thirty minutes after the debate finishes.

The leaders' debate is on TV One at 7:00pm tonight.

Labour's Seismic Shift

Labour has seen a step change in their chances of leading the next government in the past four days, a point brought home in the chart (click for a larger view).

In the days following iPredict's launch in early September, Labour's chances of leading the next government hovered around the 25% mark. Towards the end of September, a downwards trend in this market began with Labour sinking to the low 20's by the end of last week.

And then there was the Morgan Poll on 10 October, which produced a surprisingly narrow gap of 3% between National and Labour. This was followed up later on Friday by the release of a TV3 poll also showing a narrowing gap between Labour and National.

This shocked the market and the result was a step change up for Labour by 6% - a significant change give Labour's relatively low starting point. And there is some indication of an additional upwards movements in Labour's re-election prospects since Friday, which may be a product of two major announcements, the first that the government will insure bank deposits, and the second being Labour's universal student allowances policy in kick in four years from now.

This upwards trend in Labour's chances of leading the next government has of course been mirrored by a decline in National's chances. National is now down to $0.69, not its lowest level since iPredict launched but close to it.

What is striking is how little other recent events have moved Labour's election prospects. The global financial meltdown, the release of National's tax policy last week, and the disclosure that the government is looking at 10 years of budget deficits did not move traders on iPredict - producing at most a gradual downwards movement in re-election chances.

The current momentum is with Labour, it will be interesting to see what National does reply and whether that response is enough to convince traders.

Morgan Poll Hits PM Stocks

Take a look at the effect of tonight's shock Morgan Poll, out in the past hour, on our PM stocks.

The Morgan Poll is an opinion poll on vote share and its latest results show Labour closing the gap on National, and traders on iPredict have reacted vigorously to the news.

The PM.LABOUR contract, which closes at $1 if Labour leads the next government, skyrocketed all the way to 38 cents, up a full 15 cents from what has been a fairly long term average in the low to mid-twenties.

However, the spike did not last, and other traders appear to have come in and take advantage of some traders' willingness to pay up to 38 cents for PM.LABOUR contracts.

PM.NATIONAL also reacted but not as strongly and few trades were being done than on the Labour contract.

The present volatility in the PM stocks reflects traders trying to understand the new information that has unexpectedly arrived and the consequences for Labour and National. The question of who will lead the next government is complex in an MMP environment. Traders must not only consider vote share, but also the combinations of parties which could go into forming the next government.

What is clear is that this Morgan Poll is of a consequence that other major events this week - the shock news that the government is forecast to be in deficit for the next decade, the release of National's tax policy, and the unexpected turn for the worse in global finance markets - are not. None of these other events moved the PM stocks at all. For that, we need shock poll results.

It will be interesting to see where the market settles at as this new information is understood and incorporated.

Click on the chart for a bigger view.

Update 11/10: Labour's chances of leading the next government seems to have settled 5% up from their long term average in the low 20's. National's likelihood of leading the next government has seen a corresponding 5% fall. National's 50 point lead in the leadership stakes has been cut to 40.

Another poll out tomorrow, Sunday. Will be interesting to see whether it has a similar effect.