As recently as 2014, political betting was arguably the most reliable market for favourite-backers. Suddenly it’s become a haven for historic upsets. Anyone who thought 2016 was a freak year got a rude awakening last month. Based on their respective positions at the start of each campaign, Labour denying a Conservative majority was a bigger upset than either Brexit or Donald Trump’s defeat of Hillary Clinton.
Market after market was turned on it’s head. The reason, of course, is that expert opinion, narrative and therefore markets are driven by conventional wisdom – which breaks down during changing times. So what is changing and what lessons can we learn going forward?
The ‘late swing towards the status quo’ theory is bust
It used to be a given that governments would recover late in the campaign, as voters stuck with ‘the devil they know’. It sounds logical and the evidence stacked up. The theory applied to every Conservative win between 1983 and 1992, the 2014 Scottish Independence referendum and when the last three incumbent US presidents won a second term. It was probably a factor behind David Cameron’s surprise majority in 2015.
After a year of earthquake election results, the theory no longer inspires confidence. We will never know whether there was a late swing to the status quo in the EU referendum – as implied by the polls – because it is quite possible that the polls were always understating Leave due to differential turnout.
However the theory certainly fell down with Trump, as undecided voters broke decidedly for the outsider candidate and that phenomenon very much seems to apply to Jeremy Corbyn. While it was no great surprise to see a pro-Labour swing mid-campaign, their late momentum was unprecedented in living memory. Only one poll during the entire campaign predicted they would get 41%. Indeed, their 40-45% vote share was matched well above 200 to 1 on the Betfair exchange!