News & Events

Kerry Leads Iowa Electronic Markets after Iowa Caucuses

John Kerry's win in the Iowa Caucuses made him a favorite among traders in the Iowa Electronic Markets (IEM), with his shares trading at 38 cents Tuesday morning.

The IEM price reflects that Kerry has a 38 percent chance of winning the Democratic presidential nomination market. Howard Dean was at 25 percent, followed by a "rest of field" futures contract covering John Edwards at 22 percent. Wesley Clark was at 16 percent on Tuesday.

The Iowa Electronic Markets are real-money, web-based futures markets run by professors at the 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.

Traders in the IEM reacted to the Iowa caucus results quickly, buying and selling contracts on the news of Kerry's win. Dean shares dropped from about 50 percent on Sunday, Jan. 18, to the 25 percent level Tuesday, while Kerry went from 15 percent on Sunday to 38 percent on Tuesday.

The IEM prices foreshadowed Dean's falling popularity before the Iowa Caucuses, said IEM co-director Tom Rietz, an associate professor of finance at the Tippie College. In the weeks before the caucuses, Dean fell from a high of 74.9 cents on Dec. 13 to just 51 cents the night before the caucuses. Traders reacted quickly to the caucus defeat, driving his price down to 35 cents by the end of the evening.

The IEM also has a market for the 2004 presidential election that shows how each of the Democratic candidates would fare against George W. Bush. This market projects the percentage of the vote share candidates could capture in the November election. On Tuesday, this market showed that neither Kerry nor any of the other Democratic candidates would fare well against George Bush.

Started during U.S. presidential election 1988 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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