Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Financial and betting markets stunningly miscalculated the outcome of Britain's referendum on leaving the European Union. They can't put the blame entirely on last-minute polls pointing to a vote in favor to remain.

Poll Lead
After a tight contest, Remain had a slim lead in the opinion polls before the U.K. referendum
Source: Bloomberg composite EU Referendum Poll Tracker

Resident in the south-east of the U.K., London-based financial workers doubtless had no intuitive feel for the weight of support for the "Leave" campaign in England outside London.

If they had, they might not have interpreted the repeatedly tight polls over the course of the four-month campaign in such an EU-positive way.

Rise ...
The U.K.'s FTSE 100 Index rose in the days before the U.K. referendum on EU membership
Source: Bloomberg
Intraday times are displayed in ET.

On polling day and the day before, the pound and U.K. stocks rose as if the vote were a forgone conclusion.

... And Fall
The U.K.'s FTSE 100 Index slumped in the wake of the vote to leave Europe
Source: Bloomberg
Intraday times are displayed in ET.

There may have been a feedback loop with the equally mistaken betting markets.

As my Gadfly colleague Michael Regan pointed out, the apparently high conviction of the bookies' odds in favor of the "Remain" campaign reflected the weight of money being bet on the U.K. staying in the EU. More bets were actually being placed on "Leave."

When voting ended, a poll was released indicating a 52 percent win for Remain. Markets understandably took that as further encouragement.

There was another factor that helped drive up the pound to $1.50 immediately after polls closed: a reported comment by prominent Leave campaigner Nigel Farage that the Remain camp would "edge" the result. It was later reported that Farage made the remark because of what he was hearing from people working in finance, who had been conducting their own private polling.

Sterling tumbled after the vote in favor of Brexit
Source: Bloomberg
Intraday times are displayed in ET.

Markets are meant to be forward-looking, and hate uncertainty. Here their impatience for answers and fixation on gains will have proved costly for those who made bullish bets on the outcome of the plebiscite and have seen sterling and stocks fall.

In regulatory terms, Brexit was a medium-probability, high-impact event. In other words, it posed a significant risk of loss even if the probability of a Remain vote was 55 percent (as the last poll before voting closed had predicted). Markets were always going to react more negatively to a Leave vote than positively to a Remain vote. A 55 percent chance of making $10 combined with a 45 percent chance of losing $20 is an overall likelihood of losing money.

An efficient market expressing that view would have been cautious up until the end -- even if private polling had suggested a narrow win for Remain. In the event, the market seems to have focused on probability at the expense of impact.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Chris Hughes in London at

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Edward Evans at