There is less than a month until the UK’s Brexit referendum, which is likely to be this summer’s biggest international political event. All eyes are on the polls as the world tries to decipher what will happen.
But unfortunately, poll results have been inconsistent, with differing results most pronounced when comparing online and telephone polling results.
Online polls occur more frequently and are self-selecting, implying a higher willingness to answer honestly. However, self-selection doesn’t guarantee a representative cross-section of the relevant population. Also, online polls tend to return a higher level of “undecideds.”
This matters because the foreign exchange market appears to be highly sensitive to swings in opinion polls.
Interestingly, the closer you get to an actual event the less accurate polls may become. In fact, history shows that the disparity in polling methods tends to disappear as an event draws near due to an industry phenomenon known as “herding.”
Statistical analysis seems to infer that polling firms seek safety in numbers, at the possible expense of accuracy, as the commercial and reputational risk of being an outlier is so high.
Here’s the irony: Brexit polls are not helpful now because they are returning different results. But they may not be helpful closer to June 23rd either, because they all say the same thing.
Hedge funds and investment banks are positioning themselves to take advantage of the referendum outcome’s uncertainty via private exit polls. By gathering legal insider information, these major players hope to profit by placing major bets on the pound if their private polls indicate a result different than what the market expects.
Our View: Markets are skeptical of the credibility of opinion polls. That means both sides will be making big marketing pushes, signaling a volatile summer for the British pound as the currency continues to react to changing poll results. On the day of the referendum, we expect volatility to spike, especially if those funds make big bets based on their private polls.
What is the Brexit? Read our Q&A to learn more.
|The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader’s specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.|