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Greek Elections May Bring Trading Opportunity of a Lifetime

Friday, 1 Jun 2012 | 2:57 PM ET
Angelo Cavalli | Photodisc | Getty Images

The Greek elections may be creating the trading opportunity of a lifetime.

Today (Friday) is the final day on which polls of Greek voters can legally be published in Greece, ahead of the country’s June 17 election. Which means that for the next 16 days, there will be no official word about which way the Greek electorate is leaning.

This informational blackout has the potential to be transformed into a huge informational asymmetry—and therefore a trading opportunity.

It’s not entirely clear to me whether the ban is strictly on publishing polls or on taking polls. I’ve heard that news organizations and political parties may still conduct polls for their own purposes, but may not publish them. In any case, it’s clear that those outside of Greece can still conduct phone polls of Greek voters.

A hedge-fund manager could easily hire a polling firm to figure out which way voters are leaning as the election nears. And because the two leading parties—Syriza and New Democracy—have such divergent views on the terms of the Greek bailout, this could very well be tradable data.

Alexis Tsipras, the leader of Syriza, announced his party’s new anti-bailout platform today, saying that he would completely repudiate the loan agreement with the European Union and the International Monetary fund, halt the privatization of companies now under state control, and freeze wage and pension cuts.

“You either implement the memorandum or you cancel it,” Tsipras said Friday, according to the Greek news organization, Ekathimerini. “We are asking for Greeks to vote for us so we reject it.”

New Democracy leader Antonis Samaras yesterday said that his party would seek to renegotiate the terms of the bailout, rather than repudiate it altogether. He hints that repudiation of the agreement would result in Greece being forced out of the euro-zone.

The results of the election are currently very hard to predict. Last weekend, polls showed New Democracy with a narrow lead. But the latest poll published on Friday showed a six-point lead for Syriza. In any case, no party will receive a majority of votes, which means that any government will likely be a coalition of various parties. (You can see a complete table of the poll results in this FT Alphaville post, along with a useful discussion of possible coalition dynamics.)

The ban on polls will keep most of us largely in the dark about the shifts in electoral sentiment over the next two weeks. But investors could take advantage of this darkness by commissioning their own polls to shine a light into the shadow. The Greek ban on polls may have the unintended consequence of rewarding traders with nonpublic information.

I’m fairly certain that at least some hedge funds are already planning on commissioning polls. When they do, it may be possible to catch a glimpse of their information by watching shifts in financial markets.

If we see a decline in asset prices expected to fall if the anti-bailout forces win, for example, we can surmise that traders with an informational edge are selling.

Of course, even the best polling information won’t eliminate uncertainty. Polls can be wrong. And it is devilishly hard to predict how markets will react to the elections in any case. Is a leftist victory bullish or bearish for the Greek economy? Is New Democracy right that Syriza’s platform would result in a Greek exit from the euro? And does that buoy or sink the Euro?

Probably the safest bet is that a victory for Syriza would be bearish for the bonds of sovereign peripherals and bullish for German bonds.

But even that is uncertain.

Regardless of your thesis about what a victory or defeat for Greek leftists would do in the financial markets, having better information about the electoral outcome is sure to be valuable. Someone might just make “the best trade ever” in the next two weeks—all thanks to Greece’s restriction on freedom of the press.

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