Super Tuesday Brings Wild Swings to Iowa Electronic Markets
Tuesday started with Clinton holding only a slight edge among investors at 52 cents a contract, to Obama's 46.9 cents. Their values then rose and fell by as much 15 cents through the day, with Obama at one point reaching 56 cents a contract and Clinton topping 60 cents.
But after all the swings, the prices had settled back to their pre-Super Tuesday equilibrium Wednesday morning. At 9 a.m. CST Wednesday, Clinton's contract price was trading at 52.1 cents, while Obama was at 47.5 cents. The numbers mean IEM investors believe there is a 52.1 percent probability that Clinton will be the Democratic nominee for president, with a 47.5 percent probability Obama will be the party's standard-bearer.
Obama showed early strength Tuesday and by mid-afternoon, prices for his contract had moved ahead of Clinton's. By mid-evening, as early state results brought a strong showing for Obama, the price of his contract jumped to 56 cents, to 43 cents for Clinton.
But as more states came in for Clinton throughout the evening, investors began returning to Clinton shares and her contract value moved back to the front.
A dramatic shift occurred between 8 and 8:45 p.m. CST Tuesday. At 8 p.m., Obama's shares were trading at 54.6 cents, to 48.7 cents for Clinton. However, just 45 minutes later, Clinton's shares were trading at 56.1 cents -- a jump of more than 7 cents. Obama's price, meanwhile, dropped nearly 10 cents, to 44.3 cents.
At 11 p.m, Clinton contracts were selling for 60.7 cents, to 40 cents for Obama.
Clinton received another boost after projections showed her winning in California, so that just before midnight CST, her contract value jumped to 63 cents, while Obama's slumped to 36.7 cents.
The nomination markets, operated by the University of Iowa's Tippie College of Business, are real-money political prediction markets in which investors buy and sell shares of the candidate they think will win an election.
The IEM's nomination markets will pay off following the party conventions this summer, after each party officially nominates its presidential candidate. The IEM does not attempt to predict the winner of the caucuses or primary elections in individual states.
Meanwhile, on the Republican nomination market, investors solidified John McCain's position as the most likely candidate to be the party's presidential nominee. As of 9 a.m. Wednesday, McCain's contract was trading for 91.5 cents on the Republican market, meaning investors believe there is a 91.5 percent chance he will be the Republican's presidential nominee.
The value of Mitt Romney's contract dropped by more than 75 percent Tuesday, dropping from 13.5 cents in the morning to 3.1 cents at midnight after a poorer than expected showing in many states. By 9 a.m. this morning, his contract price had settled at 2.5 cents.
However, Mike Huckabee's better-than-expected day did little to convince IEM investors that he would be the Republican nominee. Although he won five states, the price of Huckabee's contract jumped only a little, from less than 1 cent early Tuesday to 2.9 cents at midnight. At 9 a.m. Wednesday, Huckabee contracts were trading at 2.4 cents.
Trading volume on the IEM was heavy Tuesday. More than 29,000 contracts traded on the Republican market, with more than 13,000 trades of McCain's contract alone. More than 25,000 contracts changed hands on the Democratic market, with Clinton moving more than 9,000 and Obama more than 8,700.
Begun in 1988, the IEM is a research and teaching tool that has achieved an impressive prediction record, substantially superior to alternative mechanisms such as opinion polls. Such markets have been significantly more accurate than traditional tools in predicting outcomes ranging from political election results to movie box office receipts.
The IEM can be found online at tippie.uiowa.edu/iem. Nominating market prices can be found at iemweb.biz.uiowa.edu/quotes/Nomination08_Quotes.html.
Contact: Joyce Berg, Director, Iowa Electronic Markets, 319-335-0840