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Election Eve: Iowa Electronic Markets Show Status Quo in U.S. Congress

On the eve on the Nov. 5 Congressional elections, traders in the Iowa Electronic Markets (IEM) continue to see a Democratic-controlled Senate and a Republican-controlled House of Representatives as the most likely outcome in Congress.

Early trading on Nov. 4 shows an 85 percent probability of Republican control of the House, and a 70 percent probability of Democrats controlling the Senate.

Six professors at the Henry B. Tippie College of Business at the University of Iowa operate the web-based futures market. The IEM provides political pundits and neophytes alike the opportunity to predict whether the Democrats or Republicans will control Congress. Traders back up their predictions by buying and selling futures contracts in the IEM based on different election outcomes.

"As we approach the election, the market is indicating no sure outcome, but the most likely scenario is the status quo in Congress. Recent volatility and price changes are indicating great deal of uncertainty about the election," said Thomas Rietz, IEM co-director and associate professor of finance at the Tippie College.

The IEM is a small-scale, real-money market used as a teaching and research laboratory. 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. For more information, see the Iowa Electronic Markets website or contact the IEM office at (319) 335-0881.


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