Other / Jack Houghton / 09 June 2011 /

It's getting hot in here but we're not taking off all our clothes just yet... After a dry spring, Jack Houghton explains how to bet on the highs and lows of British summertime.

Betting markets are incredibly reliable predictors of chance. Over the course of many hundreds of events, they prove remarkably prescient in telling you the likelihood of something happening.

This will come as no surprise to anyone who has read The Wisdom of Crowds by James Surowiecki. The premise of the book is that when it comes to making predictions, provided you get a large and diverse enough group to state their opinion, they will show amazing predictive powers.

All this leads to an obvious question: if the market is so accurate, then what's the point of betting? Surely, in the long-run, you can do no better than break-even?

Not so. Whilst the market is right across thousands of events, it is unlikely to be right about every selection. Far from it. The job of the successful punter is to find those individual instances of inaccuracy. And the best place to look? Wherever the collective wisdom is somehow mislead.

This brings us to the point of this blog: the market for the top UK Summer temperature. As a result of the hottest and driest spring (March to May) on record - where the average temperature was over 50 degrees Fahrenheit and rainfall was barely a fifth of what would have been expected in some areas of the country - some forecasters have predicted we are in for a scorching summer. And with news that the Environment Agency is about to declare large parts of the country to be in drought, it's easy to understand why punters are drawn to backing the big degrees.

There are a number of reasons, however, why this reaction is ill-advised. First, a declaration of drought is more about the weather we've had, rather than the weather we have to come. Second, a hot spring does not necessarily translate into a hot summer. It's true that a dry spell can lead to hotter temperatures as the sun is able to concentrate its energy into warming air rather than evaporating water; but there are other factors, such as the direction of prevailing winds and local airflow, that have a greater effect on whether a scorcher is recorded.

Third, and most importantly, a hot summer does not necessarily translate into a record high temperature. For example, 1976 - the hottest summer on record in terms of average temperature - only recorded a high of 96.6 degrees Fahrenheit: distinctly mid-table when it comes to the temperature bands used in Betfair's market.

I've gone back and looked at the maximum temperatures recorded in the UK going back to 1900. In 82 of those years, backing one of the two bands covered by 85.01 to 94.00 degrees would have seen you collect. That translates into a coupled price of [1.35]. Currently, in a very illiquid market, those two bands are coupled at [1.38]. Assuming you would get matched if asking for [3.0] in each band ([1.5] coupled), there's clearly a lot of value to be had here, albeit at a short price.

But isn't the climate warming? Aren't we likely to see ever-higher temperatures each year? Well perhaps, but the data seems to suggest that, even if the world's climate is warming, the maximum temperature recorded in the UK in any summer is influenced more heavily by other factors. Looking at all of the data on a scatter diagram does not show any perceptible increase in recent years, and conducting the same analysis as above using more recent date ranges only serves to increase the years in which 85.01 to 94.00 degrees held sway.

It might be a hot summer, but it's worth keeping a cool head in this market.

Recommended Bets
Back 85.01 to 90 at any price over [3.0] in Top UK Summer Temperature market.
Back 90.01 to 94 at any price over [3.0] in Top UK Summer Temperature market.

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