December 15, 2011 | By UI News Services
Traders on the Iowa Electronic Markets are increasingly sure that Ron Paul will be among the top finishers in next month's Iowa GOP caucuses while Mitt Romney is in the midst of a sharp decline.
Paul's contract was trading at 82.4 cents on the IEM's Iowa Caucus market Thursday morning, which means traders believe he has an 82.4 percent probability of finishing in the top 2 in the GOP caucuses next month. Paul has been trending upward since Nov. 11, when he was selling for just 6 cents on the Caucus market.
Meanwhile, Romney was selling for 30 cents Thursday morning, a sharp drop from the 87 cents his contract had been fetching as recently as Nov. 14.
Newt Gingrich is the other candidate the market believes has the highest probability of finishing in the caucus top 2, with a price of 72.3 cents Thursday morning. Gingrich had been selling for as high as 80 cents on Dec. 11, but has been trending down since.
Michele Bachmann and Rick Perry were selling for less than 10 cents each.
Traders are less certain that Paul will win the GOP nomination, however. On the nomination market, he was trading for only 6.5 cents, which means traders believe he has a 6.5 percent probability of being the party's nominee to face Barack Obama. Romney is still the most probable nominee, with his contract trading for 52.5 cents Friday morning, though that price is well off his 85-cent high on Nov. 3.
Gingrich is trading for 27 cents on the nomination market.
The Rest of Field contract on the nomination market was trading for 9 cents, which means the markets believe there's a 9 percent probability that Jon Huntsman, Rick Santorum, or some other candidate not yet in the race will be the nominee.
A real money futures market operated by the University of Iowa's Tippie College of Business, the IEM gives traders from around the world the opportunity to buy and sell contracts based on what they think the outcome of a future event will be. Contracts for the correct outcome pay off at $1, all other contracts pay off at zero. As a result, the price of the contract at any given time is the probability that the traders believe that event will happen. Traders can invest up to $500 in the market.
The latest prices on the GOP Convention market are available online at iemweb.biz.uiowa.edu/quotes/356.html. The latest Iowa Caucus market quotes are available at iemweb.biz.uiowa.edu/quotes/355.html.
More information on the IEM is available at tippie.uiowa.edu/iem/markets.
Contact: Tom Snee, UI News Services, 319-384-0010