Electionresults,marketreactionandpollstererrors

US election results are trickling in and the markets are reacting to every bit of news which is coming in. As of the latest numbers which have come in, the race is close both in terms of the popular votes as well as the electoral college votes. It is too early to use any words like “done deal”, “landslide”, “definite” etc. The votes will be counted till late in the day as a lot of voting has happened from mail ballots which will take a long time to get fully counted. Some analysts have noted that Democrats are expected to win the bulk of mail in votes hence whenever those votes get counted it will shift the trend. Given all these delays it looks like a good day to remember the old ballot box voting in India where it used to take at least three days in the case of General elections before a final verdict can be announced. This was the case some 20 years back post which the entire apparatus was shifted to EVM which resulted in quick results shortening the time to hours from days.

Talking about how the final results are tallying to the predictions,  already some surprises have emerged. The state of Florida which was expected to go the Democrat way (70:30 as per the fivethirtyeight.com) has gone to Trump. So whenever the poll predictors end up with a result which is not as per the estimates a lot of outcry happens. On that juncture it is important to look at their models and their inherent assumptions. Models are mostly based on the opinion polls and exit polls and then a recalibration happens to tune it further. The polls which form the base are very prone to get afflicted by representation bias. It is important to note whether the sample which the pollster took was representative enough of the larger population about which it wants to make a prediction. Sometimes the sample is skewed in terms of a particular community which would result in over or under estimation of the final result. To remove this bias a process called aggregation of various independent polls is used so as to reduce the errors.

Moving on to the market reaction. The Dollar Index is trading at 93.80. US 10 year yields which saw the highs of 0.94 during the day are now trading at 0.82. The sudden drop in yield in one way can be interpreted as a flight to safety as the bond price and yields are inversely related. This also indicates that the results were not in line with whatever the market expected. The Euro and GBP are trading at 1.1660 and 1.2990 respectively. The Onshore Chinese yuan is trading at 6.6970 now. The Hang Seng is trading mostly flat. The Indian rupee opened at 74.40 to trade at 74.60 currently. The 10 year benchmark bond trades at 5.89 mostly unchanged from previous close.