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Iowa Electronic Markets Show Tight Presidential Race

With only a few days to go before the Nov. 2 presidential election, the Iowa Electronic Markets (IEM) are showing a close race between George W. Bush and John Kerry.

As of Oct. 29, Bush contracts were trading at 53 cents in the IEM's winner-takes-all futures market, compared to 47 cents for John Kerry. IEM prices reflect the probability of each candidate's winning the election. A week ago (Oct. 22), Bush led by 60 cents compared to 40 cents for Kerry, but Bush's price dropped steadily this week.

Throughout the summer, the IEM had shown a fairly close race, but Bush took a strong lead in the market following the Republican National Convention, with his price topping 70 cents. His price, however, dropped after the three presidential debates.

"While this market has consistently given the edge to Bush, traders seem less sure of the outcome now than they were in June. Prices indicate a tighter election than any we've seen since the IEM project began," said Forrest Nelson, IEM co-director and professor of economics at the University of Iowa.

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. Traders invest as little as $5 or as much as $500 to buy futures contracts based on the outcome of the 2004 presidential election.

The close race is equally evident in the IEM's vote share market, where payoffs are based on the percentage of the popular vote that Bush and Kerry will receive in the election. The vote share market has Bush receiving 50.6 percent of the vote, compared to 49.6 percent for Kerry.

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 3,100 traders have invested $356,000 in the Iowa political markets.

The IEM is also offering a market on which party will control the House and Senate in the Congressional elections. This market indicates that the Republicans are favored to retain control of Congress and gain seats in both the House and Senate.


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