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Unless the polls are systematically biased or there is a late-breaking surge in support for “Yes,” the “No” campaign looks set to squeak by with a narrow victory in the Scottish independence referendum. On the betting markets, a “Yes” vote has plunged below an implied probability of 20%. What has this decline in the prospects for independence done to capital markets? In my last post on the subject, I found that British firms and the pound were nearly untouched by what was at the time significant momentum for “Yes,” but that a nine-firm Scottish equity index was hit hard. If those losses reflected unease about independence, then the latest news should have caused growth in my Scottish equity index.

The biggest decline in the Yes team’s chances actually came overnight September 11-12, when the chances of Scottish independence abruptly fell about 10 percentage points on the release of new polls in the evening of September 11. (For a full list of recent polls, see Wikipedia.) The Yougov poll showing “No” in the lead (a dramatic reversal from its previous poll) seems to have been leaked just before the closing bell on September 11.

betfair independence odds

Accordingly, I examine the performance of the Scottish equity index on the London Stock Exchange between 4:30 PM and 5:00 PM local time on September 11, when the odds of Scottish independence declined so rapidly. These are the nine stocks I include in the index: SL, SSE, FGP, WEIR, SGC, AGGK, WG, ADN, and MNZS. Of these, eight of nine rose on the poll news. Again, I weight by each stock by its market cap to create the index. The index rose 0.5% on the news, a rather small increase compared to the 1.7% decline after the shock Yougov poll showing “Yes” ahead. The overall patterns were pretty similar, though. The two transportation companies, Firstgroup and Stagecoach Group, were basically unchanged between the two. Energy-linked firms and Standard Life led gainers. Aggreko (temperature control systems) registered a small gain, and Aberdeen Asset Management a somewhat larger one.

Roughly a ten-percentage-point drop in independence likelihood led to a 0.5% gain in the value of Scottish equities, less than a third of the loss in Scottish equities after an eight-percentage-point gain in independence likelihood just a few days prior. On balance, these results suggest we should revise downward the costs of secession suggested by the prior post.

One objection to this interpretation might be that the leak of the Yougov poll just before the closing bell gave traders little time to respond. But this does not appear to be the case. The Scottish equity index was flat at the opening bell on September 12, suggesting that there was no new information for traders to consider.

Here are two more interpretations. First, betting markets are less liquid and well-capitalized than financial markets. The actual gain in the probability of Scottish independence after the first Yougov poll may have been greater than the immediate response on betting markets. Second, the shock of a poll actually showing “Yes” ahead may have led traders to overestimate the likelihood of Scottish independence, and perhaps even the costs of secession (in a moment of panic). Having been inured to the initial shock and its aftermath, traders then took later news with more equanimity.

Overall, though, the results are still suggesting net economic costs to Scottish independence. How much of the emphasis should be put on the “Scottish” part of that phrase and how much on “independence” remains a matter of debate, but clearly energy and financial firms are more affected than transportation and service ones.

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The Oxford Review of Economic Policy has a brand-new special issue on the economics of independence. The entire issue seems to be open-access right now, so check it out. (HT: Doug Irwin)

In Scottish news, polls have turned a bit against independence, and betting markets now price a “Yes” at around 22-24%. I will take another look at how this affected capital markets, and what that implies about the economics of independence, a bit later in the week.

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And there’s real money behind it, with more (hopefully) to come:

As for its goal, here is how Day put it in his news release:

“Crushing debt, unfunded entitlements, the government takeover of healthcare, overregulation, the decaying of our public schools, and massive government intrusion into our private lives are a direct assault on our liberty and individual rights.

“What if we could prove that liberty works? What if we could transform the Republican Party into a party of liberty that embraces the millennial generation? What if we could break the cycle of failed Republican candidates who support the expansion of the welfare state and position the country for a Goldwater/Reagan Republican in 2016?”

The PAC first wants to elect “the first pro-liberty, millennial governor (Andrew Hemingway)” and “win a pro-liberty majority for the Republicans in our 424 person state Legislature.”

Day is chair of the Republican Liberty Caucus of New Hampshire, which has endorsed 12 GOP candidates for the state Senate, including five who are taking on sitting GOP Senators in primaries. Hemingway is former chair of the RLCNH.

Stark360 proposes “a statewide, data-driven grassroots campaign that will endure beyond 2014 and address a fundamental structural weakness of the Republican Party,” and then “position New Hampshire to elect a Liberty Republican candidate in our crucial 2016 first-in-the-nation primary.”

“New Hampshire is the single best investment to demonstrate and spread liberty throughout the rest of the country through New Hampshire’s critical first-in-the-nation primary status,” said Philips.

“The people of New Hampshire inherently embrace liberty” and in the state, “elected officials are accountable,” he and Day said.

Quoting former Gov. John H. Sununu that, “Iowa picks corn; New Hampshire picks Presidents,” Day said that in recent primaries the state has actually picked “losing presidential candidates.”

“A small, elite group of the New Hampshire Republican establishment, corrupted by D.C. interest groups, has disenfranchised New Hampshire voters, alienated the youth vote, and manipulated party rules for personal advantage. In particular, the treatment of Ron Paul in New Hampshire and the egregious manipulation of the rules aimed at harming Ron Paul delegates in the 2012 Presidential race, needs to end now. Our data-driven grassroots infrastructure will restore the Republican Party back to the liberty loving citizens of New Hampshire and serve as a model for the rest of the nation,” Day said in a statement.

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NOTA

Here and here are some brief pieces on a bill in New Hampshire to provide the option of “none of the above” (or NOTA)  on ballots.  As the sponsor (Charles Weed) explains:

“Real choice means people have to be able to withhold their consent,” Weed said. “You can’t do that with silly write-ins. Mickey Mouse is not as good as ‘none of the above.’”

If  NOTA wins, there would have to be a special election. I am assuming that this could go through multiple iterations. What would happen if NOTA continued to beat flesh-and-blood candidates? A return to the state of nature? A new social contract?

Whenever possible, I vote third party. I view it as simultaneously 1. meeting my self-induced obligation to vote, and 2. withholding my consent from the binary. Occasionally, I can actually support  a candidate who genuinely deserves my vote. The NOTA option would allow me (and many others) to send a much clearer message. It might also increase voter turnout.

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Today’s election results from Catalonia are in, and the verdict is: status quo. Turnout increased dramatically from 58.8% to 69.6%, but there was little change in the overall position of pro-independence and anti-independence forces. Explicitly pro-independence parties received 74 of 135 seats, down two from the previous parliament. However, if the pro-independence referendum quasi-nationalist Catalan Greens are included, the pro-referendum forces won 87 seats, up one from the previous parliament.

The biggest shift came within each camp, as there was growing polarization along the independence-centralism dimension. The most moderate pro-independence party, CiU lost 12 seats, from 62 to 50. The more radical and left-wing ERC went from 10 to 21 seats. Meanwhile, the most radically anti-independence party, Citizens, went from 3 to 9 seats, while the most moderately anti-independence party, the Catalan Socialists, went from 28 to 20 seats.

So the bottom line is that the apparent surge in independence support we heard so much about apparently came exclusively within the camp that was already nationalist, as reflected in CiU’s adoption of independence — or more properly, “statehood,” as their objective. Moreover, while a full analysis will have to wait until exit poll details are known, it is possible that among the Catalan-born there was a shift from non-nationalist parties to nationalist parties. The reason is that in most regional elections the Catalan born participate at much higher rates than immigrants. The big increase in turnout most likely reflects mobilization by immigrants, who are overwhelmingly anti-independence. Hence the status quo result, which will be somewhat disappointing for the pro-independence side. Nevertheless, independentists did win a clear majority of seats and will easily be able to push through a bill on a referendum if they decide to do so.

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As I write this, Republican Scott Walker is flirting with a 60-40% landslide victory over Democrat Tom Barrett in the Wisconsin recall election. The GOP state senators up for recall are also all leading by 20%+ margins. While the counting is early yet and those margins may come down (even though the races have been called), the county-level results are showing Walker almost uniformly outperforming his 2010 showing, which was of course a very Republican year. What accounts for this overwhelming victory, which seems to defy much of the polling (although one late poll had Walker up 12) as well as the CNN exit polling?

We can discard one possible explanation right away: low turnout. In fact, the election had very high turnout, about 60% of the eligible electorate, which is normally thought of as favoring Democrats. It is possible that Republicans were more motivated than Democrats and turned out in particularly high numbers, and indeed Walker was more likely to outperform his 2010 performance in counties that were Republican to begin with. So differential turnout remains a strong possibility, but merely invites a further question: Why did pro-Walker voters turn out in greater force?

Another possibility is that Walker is quite popular and that the median voter strongly favors his collective bargaining reforms. This is likely part of the explanation, as polls show majority approval of Walker’s job performance and his collective bargaining reforms, but he still seems to be outperforming even these polls in the recall election.

The third piece of the puzzle may be that some people who oppose Walker and his reforms actually voted for him because they did not believe in using the recall process. The exit polls, flawed as they apparently were, show a strong majority in favor of the view that recall elections should be used only in cases of official misconduct. However, I remain skeptical that very many voters would actually cast a vote in favor of a candidate to which they were opposed. Ideology almost always trumps process concerns for voters. What may have happened is that the process concerns kept moderate Walker opponents home disproportionately, thus contributing to the GOP turnout advantage.

UPDATE: Despite the apparent county-level improvements over 2010 for Walker in the early counting and huge leads for the Republican senators, the final count ended up much closer than the early results. In fact, one of the Republican senators was defeated. The early precincts to report must have been overwhelmingly Republican across the state. The closer final count makes me think that the “process” issues were a lot less relevant to voters than the media spin would have it.

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