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Iowa Electronic Markets remain mostly unfazed by presidential debates

Traders in the Iowa Electronic Markets (IEM) were largely unfazed by yesterday's presidential debates, with prices remaining mostly unchanged in early trading Wednesday.

It's still a very close presidential race in the IEM, the University of Iowa's real-money market where traders buy and sell political futures. Current market prices show Al Gore at 49.5 cents and Bush at 48.8 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 2 cents. In this market, prices can be seen as predicting the percentage of the vote each candidate will receive.

However, the IEM also has a "winner-take-all" market where the winning contract will pay $1, while the others will expire worthless. Thus, prices predict each candidate's chances of winning the nomination. In this market, IEM traders favor Gore, whose price is at 63.4 cents and Bush at 36.4 cents. Prices shifted a bit in post-debate trading with Gore shares gaining a cent after the debates, while Bush shares dropped 3 cents.

With prices remaining largely unchanged, traders didn't glean any new information from the debates to change their preferences, said Tom Rietz, UI associate professor of finance and IEM co-director. At this point, IEM predicts a Gore win, but by a very tight margin.

"The debates may have reinforced people's current opinion about the candidates," Rietz added.

Forrest Nelson, UI economics professor and IEM co-director, said the price of Gore shares rose by 2 cents on Monday in the winner-take-all market, suggesting that IEM traders anticipated a slight edge to Gore before the debate. "Apparently they were not disappointed, since Gore's price edged up another two cents by midnight on Tuesday. Those price changes were small, however, and trading volume was up only slightly. All of that suggests the debate produced no surprises and no clear winner," Nelson said.

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 more than $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 world-wide.

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.


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