Dean Prices Jump in Iowa Electronic Markets on Gore Endorsement
The price of Dean's contracts on the IEM rose from 64 cents in early afternoon trading on Monday, Dec. 8, to over 75 cents by 6 p.m. That price jump coincided with early news reports of a pending endorsement by former Vice President Al Gore.
Trading in Dean contracts continued with prices in the 72 to 80 cent range through Tuesday, settling at about 76 cents after the public endorsement Tuesday afternoon. A price of 76 cents can be interpreted as a predicted 76 percent chance that Dean will win the nomination.
The IEM is a real money futures market run by six professors at the University of Iowa's Henry B. Tippie College of Business. For an investment of as little as $5 or as much as $500, traders can buy and sell futures contracts based the outcome of the 2004 Democratic Convention.
The market reacted quickly to Dec. 8 news leaks about Gore's endorsement of Dean. The jump in price in the Dean contracts within a three-hour period on Dec. 8 was five times as much as in a typical day since Dean was listed in the market, said IEM co-director Tom Rietz, an associate professor of finance at the Tippie College.
"In past elections, prices in the IEM moved rapidly with new information, such as campaign news or actions by the candidates. This endorsement news was no exception," Rietz said. "This immediacy is what makes the IEM more useful as opposed to opinion polls, which take longer to complete."
Dean has been leading the pack of Democratic contenders in the IEM since mid-October, but the Gore endorsement only increased his margin. The closest competitors in the IEM Democratic nomination market are retired Gen. Wesley Clark and U.S. Sen. Hillary Clinton, D-New York, at about 8 cents. Although she has said she will not be a candidate, the former First Lady was listed in the market because of earlier support among polls and pundits.
The IEM has a reputation for forecasting election results with great accuracy since its beginning during the 1988 U.S. presidential election. The IEM has recorded an average prediction error of 1.37 percent, compared with an average of 2 to 2.5 percent for polls.
Contact: George McCrory, UI News Service, 319-384-0012