News & Events

Iowa Electronic Markets (IEM) opens trading for Mexican presidential race

Traders in the Iowa Electronic Markets (IEM) can now buy and sell shares in the prospects of candidates in the hotly contested Mexican presidential race.

Professors at the Henry B. Tippie College of Business at the University of Iowa have opened web-based trading in political futures markets at http:/tippie.uiowa.edu/iem/markets/mexico00.html. Traders can buy share contracts in Partido Accion Nacional (PAN) candidate Vicente Fox, Partido de la Revolucion Democratica (PRD) candidate Cuauhtemoc Cardenas, Partido Revolucionario Institucional (PRI) candidate Francisco Labastida, or a contract for other qualified candidates.

The IEM is a small-scale, real- money market used as a teaching and research laboratory. For an investment of as little as $5 or as much as $500 in U.S. dollars, trading is open to participants worldwide.

In the IEM's vote share market, prices should predict the vote share candidates will receive. Payoffs on a candidate's contract will be $1 times the share of the popular vote that the candidate receives. For instance, the Vicente Fox PAN contract as of May 22 is at 48 cents, which indicates that IEM traders think that Fox will garner 48 percent of the vote, compared to 41 cents or 41 percent for PRI candidate Francisco Labastida. Cardenas PRD contracts are at 7 cents or 7 percent of the vote, and "rest of field" contracts are at 5 cents or 5 percent.

UI IEM directors, with assistance from Duke University Professor Emerson Niou and Duke political science graduate students Liz Zechmeister and Guillermo Rosas, set up the market to show students and others how markets operate. It's also an experiment to observe how the markets react to a three-party election.

"We'd like to use the data generated by the markets to explore fluctuations in the strength of the candidates throughout the last two months of the race. In the meantime, it's a lot of fun to watch the values of the contracts vacillate as new traders join and old traders react to campaign events and news," said Zechmeister.

Jose Pagan, associate professor of economics at University of Texas-Pan American, encouraged the IEM directors at the UI to set up this market. He will use it in his economics classes, where many of the students are Mexican nationals. The University of Texas-Pan American in Edinburg, Texas has an 83.7 percent Hispanic enrollment and is a short distance from the Mexican border.

"This market will be of interest to most of my students. It's a very close race, and I hear news about it every day." Pagan said. "The IEM is showing that the PRI and PAN candidates are basically even. It's also more objective than opinion polls."

Since 1929, the PRI candidates have won all of Mexico's presidential elections, but Fox and his PAN party are making a strong run at the office this year, winning support as he campaigns in advance of the July 2 election.

Since its beginning with the 1988 U.S. Presidential election, the IEM has established a reputation for forecasting election results with great accuracy. The IEM's predictions of vote shares in the last three U.S. presidential elections have had an error of less than 1 percent. In addition to the current U.S. presidential and congressional elections, the UI professors have also conducted markets for several elections around the world, including the recent Taiwan presidential elections.

The IEM has 6,000 registered traders worldwide with a total equity of about $130,000; more traders are expected to log on as the election season continues.

For more information, see the Iowa Electronic Markets website at http:/tippie.uiowa.edu/iem/ or contact the IEM office at (319) 335-0881 or (319) 335-0794


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