After another miss, investors rethink their reliance on polls.

It’s common practice for market analysts, economists and other strategists to incorporate opinion polls into their models and forecasts. Although the pre-election polls pointed to a win for Joseph R. Biden Jr. on Tuesday, which still may prove correct, the underlying details were way off and the margin of victory much narrower than expected. On top of the errors in 2016, financial forecasters are rethinking how much faith to place in polls when making assumptions about elections, the DealBook newsletter explains.

“Sympathy is wearing awfully thin with regard to U.S. pollsters who have now been unacceptably far from the market two straight elections,” said Eric Lascelles, the chief economist at RBC Global Asset Management. “I’m not quite sure what we’re going to do if we literally cannot trust pollsters to be within eight points of the correct answer.”

Scott Minerd, the global chief investment officer at Guggenheim Investments, said he didn’t rely on polling at all in the run-up to the election. “In my mind, there were just too many tossup states,” he said. To guide his analysis, Mr. Minerd looked instead to indicators his firm had developed, such as the performance of stocks most exposed to key policy pledges by each candidate.

“That doesn’t mean polling is dead,” he said. A major problem is that “voters just don’t want to say what they really think,” but at some point artificial intelligence could, perhaps, identify patterns in poll data that would have “a higher correlation with election outcomes,” he added.

In the meantime, strategists like Ben Laidler, the head of Tower Hudson, an investment research firm, said he would take polls “with a bigger pinch of salt” in the future. He noted that political betting markets were less sure about Mr. Biden’s chances than opinion polls. Others say that indicators like Google searches and counting signs in yards could take more prominence in election models.

Still, polls will remain a useful guide to the market consensus — however misguided — and “we take our own views against it” when devising trading strategies, Mr. Laidler said.

Source: Read Full Article