Statistical Model Predicts A Mccain Victory?

There has been a lot of buzz lately well-nigh a elementary statistical model proposed past times astrophysicists Prof. Gott as well as MD Colley that uses the median polls of each dry reason to predict the Nov electoral vote. (For our un-American readers, the electoral vote is what determines the upshot of a full general election, non the pop vote, inwards instance the nightmarish 2000 election has non already drilled this fact into the world's collective consciousness.)

Dr. Colley has ready a I accept previously applied to the predictive accuracy of political futures marketplace such equally intrade.com. The caveat is this: polls (and futures market) alter amongst time. And at dissimilar times, they predict dissimilar election outcomes. So for example, at this indicate (June 2008), the polls predict a McCain victory, piece the futures marketplace at intrade.com predicts an Obama victory. Who is right?

The answer is: neither. As MD Colley has explained to me, no backtest equally far dorsum equally the June of an election twelvemonth has been conducted. (Their inquiry was based on polls from September onwards.) So nosotros create non know if the June polling prediction has whatever accuracy. Similarly, equally I pointed out before, the futures marketplace tin rank the sack swing violently fifty-fifty on Election Day, fifty-fifty inwards the final hours of an election.

One wages of the Gott as well as Colley method though, is that the predictions resulting from median poll statistics are remarkably stable over time. In 2004, in that location was rattling piffling crusade inwards the electoral stand upwardly for from September through election day. Extrapolating this result, nosotros tin rank the sack live on somewhat to a greater extent than confident of their prediction vs. Intrade.com's, fifty-fifty at this early on date.

And inwards whatever case, I accept observed that the political futures markets are highly mean-reverting, implying that the electrical flow large xx points spread betwixt the Obama as well as McCain futures is destined to decrease inwards the coming months.

As an arbitrage trader, I accept so proceeded to curt the Obama future.