OPINION: Follow the Money

Terry Flanagan

The post-mortems have already begun on why the polls ahead of the UK General Election were so wrong.

For months, the electoral story has been that neither the Conservative or Labour party would win the 326 seats needed to hold a majority in the House of Commons leading to days, or even weeks, of discussions on who would be able to form a coalition with one of the smaller parties. However the Conservatives easily won an overall majority and Prime Minister David Cameron met the Queen today, allowing him to form the next government.

With classic British understatement, the British Polling Council said “the final opinion polls before the election were clearly not as accurate as we would like”. It is setting up an independent enquiry to look into the possible causes of the errors and make recommendations for future elections. Even Nate Silver, the US pollster, who famously predicted the correct results in all 50 states in the last US election, said the Conservatives would win only 281 seats.

Leighton Vaughan Williams, professor of economics and finance at Nottingham Trent University, pointed out that the betting markets were much more accurate than the pre-election polls. He said in a blog: “I have interrogated huge data sets of polls and betting markets over many, many elections stretching back years and this is part of a well-established pattern. Basically, when the polls tell you one thing, and the betting markets tell you another, follow the money.”

Following the money will also become very important for research analysts when the proposed MiFID II rules come into force in Europe in 2017. The regulators want payments for research to be far more transparent and there is a debate raging over how this will happen.

Even if the final regulations do not prohibit fund managers from using commissions to buy research, the industry is going to be forced into more disclosing. Fund managers will have to justify payments to their clients, which will mean that research will have to boost fund performance. This will mean more scrutiny on individual analysts and their recommendations.

Any analysts who perform as badly as the pre-election pollsters will find themselves suffering the same fate as Ed Miliband, Nick Clegg and Nigel Farage – the three losing party leaders who all resigned today.

Feature image by Dollar Photo Club

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