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Dean Leads Iowa Electronic Markets before Iowa Caucuses

Howard Dean retains his lead in the Iowa Electronic Markets (IEM) going into the Iowa Caucuses, but his price has slipped about 20 cents, losing market share to other Democratic contenders.

In the IEM's Democratic Nomination Market, futures contracts for Dean were selling for about 50 cents Friday, down from a high of 76 cents on Dec. 9. In recent weeks, Wesley Clark has picked up market share; his contracts are trading at about 20 cents, up about 9 cents on Dec. 9. John Kerry contracts are selling at 13 cents and "rest of field" contracts (covering John Edwards, Dennis Kucinich and others) are at 10 cents. Dick Gephardt contracts are at 4 cents. Prices equal the probability of a candidate winning the nomination (20 cents equals a 20 percent probability, for example).

The Iowa Electronic Markets are real money, web-based futures markets run by 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 on who they believe has the best chance to win the 2004 Democratic presidential nomination. The IEM prices predict the final outcome of the nomination process, not the outcome of the Iowa Caucuses.

"Al Gore's endorsement lifted Dean in December, but this gain has evaporated. Traders' behavior indicates that they see other candidates becoming more viable," said Joyce Berg, UI professor of accounting and an IEM co-director.

The IEM also conducts a market for the 2004 presidential election vote share that predicts how each of the Democratic candidates would fare against George W. Bush. This market shows that traders believe that Dean would not fare well against Bush, while other candidates such as Clark, Kerry and Gephardt stand a better chance.

Started during the 1988 U.S. presidential election as an educational and research tool, the IEM has established a reputation for forecasting election results with great accuracy, predicting the outcome of the popular vote with an average prediction error of 1.37 percent.

The IEM has about 4,400 traders and $138,830 invested in the markets. For detailed information and latest prices in the markets, see the IEM website.


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