Investors mirror pollsters in election futures market

(July 8, 2004) Pollsters weren’t the only ones caught by surprise when the Liberal party won a larger than expected minority in last month’s federal election. The Shorcan Index Election Indicator — a futures market based on the popular vote percentage — also suggested a much tighter race.

The Shorcan Index allowed accredited investors to bet on the outcome of the federal election in a bid-offer format. When the market closed, the Liberals had a slight advantage over the Conservatives, with 32.9% of the popular vote, compared to the Tories’ 32.6%. The Liberals actually captured 36.7% of the vote on June 28, while the Tories were at 29.6%.

“We were pretty much in line with some of the polls, maybe a little more accurate,” says Shorcan Index president Simon Grayson. “Most people were calling for a much closer election. Everyone was caught out a little bit by the last-minute switch in Ontario.”

Shorcan’s numbers were closer to the mark for other parties, within a single percentage point for the Bloc Quebecois, Green Party and New Democrats.

Grayson estimates that hundreds of investors took part in the futures market, with Shorcan processing 50 to 150 trades a day during the three-week campaign.

The Toronto-based bond broker donated all profits to the Boys and Girls Clubs of Canada and asked participants to do the same. Grayson expects around $10,000 to go to the charity, double what they set out to raise.

The concept of a futures market linked to political events was pioneered by the University of Iowa, which has offered investors a chance to bet on the last five U.S. presidential elections. Grayson believes the Shorcan project was a first for Canada.

Grayson says Shorcan is already looking ahead to the next election, with plans for a similar project. But he says next time, they’ll start earlier so people have time to register well in advance. “It only got out there a few weeks before the election so we had this huge rush of people trying to get in,” he says. “If we started six weeks before, we would have seen a lot more activity.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com