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Iowa Electronic Markets Open Trading on U.S. Congressional Control

Currently, Democrats control the U.S. Senate by a tight margin. Is it possible that after the November elections, the Democrats will gain control of both the Senate and the House of Representatives?

The Iowa Electronic Markets (IEM) provides political pundits and neophytes alike the opportunity to predict the outcome of the November elections. As of July 19, the IEM has opened a web-based futures market based on whether the Democrats or Republicans will control Congress after the November 2002 congressional elections.

"Currently, the market indicates that there is a strong chance the Democrats will keep control of the Senate, however, prices show that control of the House is up for grabs," said Joyce Berg, IEM co-director and professor of accounting at the Tippie College. The IEM is run by six professors at the Henry B. Tippie College of Business at The University of Iowa.

As of Aug. 6, trading shows 51 percent probability of a Republican-controlled House, compared to a 49 percent chance of a Democratically-controlled House. For Senate control, the IEM shows the Democrats with the edge at 81 percent, compared to 19 percent for the Republicans.

The IEM is a small-scale, real-money market used as a teaching and research tool. For an investment of as little as $5 or as much as $500, trading in the markets is open to participants worldwide. At the close of trading on Nov. 7, the liquidation value of the contract that represents the actual outcome of the election will be $1. All other contracts will have a value of zero.

Since its beginning in the 1988 U.S. Presidential election, the IEM has established a reputation for forecasting election results with great accuracy, with an average prediction error of 1.37 percent.

During the 2000 presidential elections, the IEM attracted 7,000 traders and had over $210,000 in equity.

For more information, see the Iowa Electronic Markets website or contact the IEM office at (319) 335-0881.


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