Iowa Electronic Markets steady after second presidential debate
The IEM, the University of Iowa's real-money market where traders buy and sell political futures, show Al Gore at 50.2 cents and Bush at 48.7 cents in the vote share market, where the payoffs will be based on the popular vote received by the Democratic, Reform, and Republican nominees in the presidential election. Reform Party shares are at less than 2 cents. In this market, prices can be seen as predicting the percentage of the vote each candidate will receive.
The IEM also operates a "winner-take-all" market where the winning contract will pay $1, while the others will expire worthless. These winner market prices predict each candidate's chances of winning the nomination rather than the size of the victory. IEM traders favor Gore, whose price is at 56.6 cents while Bush's price is at 44.8 cents. Gore prices dropped about 4 cents from Wednesday afternoon's 60-cent level while Bush shares are up 3 to 4 cents after the debate from a 41-cent level on Wednesday.
But prices in this market can fluctuate rapidly with new information, such as campaign news or actions by the candidates. The spread between these prices had risen by about ten cents a week after the first debate but is now back at pre- debate levels.
Forrest Nelson, UI economics professor and IEM co-director, said the stability of vote share prices through the two debates suggest that traders have not been surprised by the outcomes of those debates. Any differences in the performance of the candidates were anticipated. "If there is a surprise, it is that the race is still so close, with the election less than four weeks away," said Nelson.
The IEM has forecasted election results with great accuracy, tracking the Democratic and Republican vote shares in the last three presidential elections within an average of less than 2 percent. The IEM has 7,000 traders and over $175,000 in equity. For an investment of as little as $5 or as much as $500, trading in the markets is open to participants worldwide.
Six faculty members at the University of Iowa Tippie College of Business operate the markets as a research and teaching tool. See the markets online at http:/tippie.uiowa.edu/iem/ for the latest prices.
For more information on the IEM, contact Jeanine Alcocer, IEM Operations Manager at (319) 335-0794.
Contact: George McCrory, UI News Service, 319-384-0012