Iowa Electronic Markets Traders Cool on Palin Presidential Bid
Traders on the Iowa Electronic Markets are growing increasingly skeptical of a candidacy by Sarah Palin, and even if she does jump into the race, traders believe there's a low probability she will win.
While there is no individual contract for Palin offered on the IEM's Republican convention market, she is represented in the market's Rest of Field (ROF) contract. The ROF contract includes all candidates for whom there are no individual IEM contracts. With individual contracts available for Mitt Romney, Rick Perry, Michele Bachmann and Ron Paul, traders who think Palin will win the nomination would buy the ROF contract.
That contract had been trading as high as 26 cents earlier this month, which meant traders believed Palin or some other candidate not named in another contract had a 26 percent probability of winning the GOP nomination. It was as high as 21.5 cents as recently as Sept. 6 before beginning a marked downward trend.
By Friday morning, it was selling for only 11.2 cents, which means traders believe Palin or some other candidate not named in another IEM contract has only an 11.2 percent probability of being the GOP nominee.
Traders assign the highest probability to Romney, who was trading at 47 cents. Perry was trading at 41 cents. Paul and Bachmann are both trading at less than 1 cent.
Traders are similarly skeptical Palin will do well in the Iowa caucus, even if she does declare herself a candidate. The ROF contract on the IEM's Iowa Caucus market was selling for 6.6 cents Friday morning, which means traders believe there's a 6.6 percent probability that Palin or some other candidate not separately named in the IEM's Iowa Caucus market will finish in the top two in the caucus. The contract was selling as high as 37 cents three weeks ago.
A real money futures market, the IEM gives traders 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, and 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.
Contact: Tom Snee, UI News Services, 319-384-0010