US Election – Post convention polling and market chaos.
Posted by Possum Comitatus on September 8, 2008
Now that the conventions are over we have chaos in the markets as the Democrat polling bounce starts to fade and the Republican bounce goes into full swing.
First up, our usual weekly update:
On the week by week changes in the projected Electoral College votes given by the Intrade state markets, as well as the expected ECV value (where the probability of the Democrats winning each state is multiplied by the electoral votes of that state, then all 50 contests summed) we get:
Just click to expand charts
The current win probabilities by State, as well as the change over the last week in those State probabilities have seen a surge to the Dems over the 7 days:
Moving on to the 100,000 trial simulation results – the State markets have diverged sharply from the headline “Democrat as President” market. For new US readers, you might want to go and have a look at the bottom of the US Election Page to see the methodology of the simulation, as well as exactly what all these charts mean if you’re interested.
For the raw sim results we have:
This is currently showing that the State markets give the probability of a Democrat victory at 62.7%, yet the headline market is showing a probability of a “Democrat as President” of 57.3% as can be seen below.
That is quite a sharp divergence. Our sim market has been a leading indicator thus far of the headline market, but we’ve never had a divergence this large before – so it will be interesting to see if the State markets are overcooking themselves, or the headline market is running with the newstraders over the convention and Palin hype.
Our simulated Electoral College votes and Electoral Map come in as:
But let’s have a closer look at what went on in the markets and polls over the last week, by looking at 5 days worth of movements for the last 7 days.
The yellow area represents the change from the weekly measurement, to the almost daily measurement of the markets. The Palin announcement sent the Democrat Electoral College vote projections sharply upwards in the State markets. Yet if we look at the probabilities and run them with the daily Gallup tracking poll results (where the Gallup data is dated on the day it was in play in the press rather than when the poll was actually taken) we get:
The headline “Democrat as President” market didn’t much care for the Democrat Convention, didn’t believe the polling bounce yet has continued to move strongly and consistently to the Republicans throughout last week.
The Dem polling bounce has now finally deflated, yet the State markets have priced the Palin announcement as a big negative for Republican chances of victory, moving nearly instantly on the news of Palin’s win in the Republican Veepstakes. The States pulled back slightly on the 4th September, but then moved again toward the Democrats yesterday.
We can see it clearly in the behaviour of the Electoral College vote allocations as well:
The States along with their electoral votes moved towards the Democrats, but the headline Intrade probability moved sharply Republican.
We have disequilibrium – you’d think something will have to give over the next week or so since arbitrage opportunities like this aren’t sustainable.
Basically – the headline market thinks the Palin choice and the Republican Convention were great for Republican chances of victory in November, and didn’t think the Democrat convention was worth a hill of beans in terms of generating electoral support.
But the States, the actual Electoral College vote market thought exactly the opposite, that the Palin announcement and the Republican Convention were negatives and still are.
One is wrong – the question is which?