Rietz Says Bush IEM Futures, S&P 500 Connected
Bookmark & ShareSeptember 13, 2004
Contract prices on two leading political futures markets -- places where you can buy securities that pay off if either President George Bush or Sen. John Kerry win -- have followed much the same pattern of the broader market indexes, but often in advance of them. Right now, both the Iowa Electronic Markets, operated by the University of Iowa, and Trade Exchange Networks' Website Intrade.com, run from Ireland, give Bush a clear lead over Kerry -- possibly presaging continued strength in the market. "There is a relationship between the stock market and how well Bush is doing in our market," says THOMAS RIETZ, a University of Iowa finance professor who serves on the Electronic Markets' board of directors. When Bush futures rise, so rises the S&P 500. In fact, a one percent increase in the probability of a Bush victory in the Iowa Markets corresponds on average to an increase of 6.96 points in the S&P, he says. Alternatively, every 10 point decline in the S&P 500 decreases the probability of a Bush win in the Iowa Markets by 1.44 percent, according to Rietz. In other words, the link between Bush and the market is clearly symbiotic: Just as Bush's rise in the polls may help the market, shifts in the market clearly can influence the incumbent's prospects.
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