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Kerry Enjoys Post-Debate Bounce in Iowa Electronic Markets

Following Thursday's presidential debate, futures contracts for John Kerry showed a bounce in the Iowa Electronic Markets (IEM). As of Friday morning, Kerry had gained eight cents from pre-debate levels.

The IEM market, designed to predict who will get the largest share of the popular vote, still had George W. Bush leading at 62 cents, and Kerry trailing at 38 cents on Friday. But on Tuesday, the Bush contract had been trading at 70 cents, while Kerry was at 30 cents, so debate performance apparently influenced IEM traders' beliefs, said Joyce Berg, IEM co-director and associate professor of accounting at the University of Iowa.

"Trading volume was extremely high over the last few days, indicating that traders see the debates as providing new information about the candidates," Berg added.

Operated as a research and teaching tool by six professors at the University of Iowa's Henry B. Tippie College of Business, the IEM is a real-money, web-based futures market. For an investment of as little as $5 or as much as $500, anyone can buy futures contracts based on the outcome of the 2004 presidential election.

Started during the 1988 U.S. presidential election, the IEM has established a reputation for forecasting election results with great accuracy. It has predicted the outcome of the popular vote with an average prediction error of 1.37 percent. Research has shown that the IEM is about twice as accurate as polls conducted before presidential elections.

To date, approximately 2,900 traders have invested $300,000 in the Iowa political markets. The volume in the IEM winner-takes-all futures during August and September has been three times what it was in the 2000 election, according to IEM directors.


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