Political Diversions

I don't believe it is appropriate to use this forum to spread my political beliefs. However, I do follow politics and I wanted to share with you two interesting sites that forecast election results. The first is Nate Silver's FiveThirtyEight.com. The preceding link will take you directly to FiveThirtyEight's latest senate forecast.


Nate Silver goes far beyond standard polling. His model calculates a weighted polling average based on the recency of the poll, the poll size, and the pollster rating. He also adjusts the polling average for likely voters, the historical "bias" or left/right tendency of the pollster, and the trend. Finally, he includes a number of other fundamental factors to arrive at a probabilistic forecast. Historically, his presidential electoral college and senate forecasts have been remarkably accurate. FiveThirtyEight also covers economics, science, life, and sports.

Iowa Electronic Markets

The second site also provides probabilistic political predictions, but the probabilities are determined by market forces. Traders can choose to buy or sell contracts on aggregate congressional house and senate control outcomes and the market prices can be interpreted as probabilities. The name of the site is Iowa Electronic Markets and their historical results have also been more accurate than many individual polls, primarily because traders are risking real money to defend their expectations.


Obviously elections and election forecasts have market consequences, but the information available at the above sites and the methodology behind the forecasts is fascinating in its own right. If you would like to avoid any surprises in early November, check out both of the above sites regularly over the next few weeks.

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About Brian Johnson

I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers. I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies. In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years. I have also written four books on options and derivative strategies.
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