Byline Times published an article which claimed that there was an ‘£8 billion bet on No Deal’ (exiting the European Union without a withdrawal agreement). This claim has been widely shared on social media.

This article examines this claim, and the failure to replicate a key graph produced by Byline Times.

A £8.3bn bet on leaving the EU without a deal?

Currently, £8,274,350,000 (£8.3 billion) of aggregate short positions has been taken out by hedge funds connected to the Prime Minister and his Vote Leave campaign, run by his advisor Dominic Cummings, on a ‘no deal’ Brexit.

First, I should explain what a ‘short’ is. Shorting a stock means you do the following:

1. Borrow the shares of a company, usually from a broker;

2. Sell those shares immediately at market price under the agreement to repurchase those shares later;

3. Once repurchased, return the borrowed shares to the owner.

If you believe the share price will fall in future, you can make money from that decrease. However, the share price could also rise, meaning you would make a loss. If you believe the share price would rise, you would purchase the shares.

Shorting stocks are scrutinised by regulators, such as the Financial Conduct Authority. It is possible to abuse shorting, such as shorting a stock and then releasing a negative analysis of the targeted company, in the hope their share price would consequently fall.

It is inaccurate to say the summed market values of various short positions are “on a ‘no deal’ Brexit”, or a “bet on No Deal”.

Short positions are taken under the expectation that the targeted company’s share price will fall in the future. The time period is not disclosed. Some companies may be shorted due to reasons entirely unconnected with the UK’s economic and political relationship with the European Union nor based on whether the UK leaves the EU on 31st October 2019.

For example, it is very difficult to characterise the shorting of Kier Group as being a “bet on No Deal”. The contractor is currently having difficulties due to delays in Crossrail.

It is unclear why every short position taken by specific hedge funds is a “bet on No Deal”. Even if estimated correctly, the £8.3bn figure does not mean what the article describes.

A dramatic change?

Between January to May 2019, less than 10 short positions were being taken out by hedge funds per week. However, that all changed dramatically when Boris Johnson announced that he was running for the Conservative Party leadership on May 16. The number of short positions thereafter doubled, tripled and quadrupled and, by the time of his victory was announced, had risen to around 100 per week.

This claim is based on an inadvertent misunderstanding of the Financial Conduct Authority’s public disclosures of net short positions. The FCA public disclosures data-set only includes net short positions of 0.5% or more of a company’s issued share capital, and 0.1 percentage point increments after that.

The accompanying graph supposedly shows the scaling heights, as more and more holders changed their position:

Typically, timeline notes are established on the main graph, and not in the axis. (Image: Byline Times)

However, this is not what the FCA data-set shows.

There are two tabs: ‘Current Disclosures’ and ‘Historic Disclosures’.

The current disclosures represent the latest position of each holder against each company, and not the incremental change on each day. The historic disclosures will also contain prior positions (though it appears to be little incomplete).

Furthermore, changing the net position can mean reducing the short in a company. Between May and July 2019, there was no such spike of shorting net position changes in the historic data-set.

The familiar shape of current disclosures occurs later in the year, since it is the latest positions.

Their clarifying article falsely asserts that Byline Times counted “the number of position holders taking out positions”, which contradicts both their article’s text (“the number of short positions”) and graphs.

What the Byline Times graph shows is the frequency across time of the latest positions in each company. Byline Times were using the current net short positions as at 23rd July 2019. This is why the frequency climbs closer to that date: latest positions are more recent. This is how time works.

Collections and Connections

Of the 43 donations made to Johnson between 22nd May and 22nd July 2019, 8 came from individuals identified to be related to hedge funds. Their donation value was £225,000 (35% of the total donation). An additional 13 donations were made from City-related individuals such as financiers, with a value of £157,500 (25%).

However, only two donations came from hedge funds or related individuals which the FCA data-set identifies as having net short positions and Research Tree evaluates on its short interest tracker. Without also knowing the ‘long’ positions, it cannot be asserted that a particular economic event would necessarily benefit those funds.

The R code for the graph in my article is published, as is the edited version of the FCA data-set I used (for 11th September 2019). The Research Tree aggregate position values and regulated donor data is available on Google Sheets.

Unless there are good legal reasons, underlying data-sets should be shared in ‘data’ stories. It would be very helpful if journalists ensure their graphs are replicable, as well as clearly explaining how figures were derived and what they represent.

This blog looks at the use of statistics in Britain and beyond. It is written by RSS Statistical Ambassador and Chartered Statistician @anthonybmasters.

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