Who will govern after 2014?

iPredict has just launched stocks on which party’s leader will be Prime Minister after the 2014 election – National or Labour?

These stocks do not assume the result of the 2011 election. If people say National after 2014, then that could either be a 3rd term for National or it could be Labour win in 2011 and then National come back in 2014.

Currently the stocks sit at 69% for National and 32% for Labour, so National are seen at this stage to be twice as likely to win in 2014, than Labour.

What will be fascinating to see if how these stocks change over time, and especially how the actual 2011 election results affects these 2014 stocks.

When you consider the cost of capital, the market seems quite optimistic that National will govern after the 2014 election. Say you have $69 to invest. If you stuck it in a term deposit for three years at 6% then in three years you would have $82. If you stick it in iPredict and National wins in 2014, you would have $100. So in reality the market is saying they think National has around a 82% chance of winning in 2014. That seems a bit over-priced for me, but I amsure the price will vary a lot over the next three years.