Long, hot summer for Romney
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It’s been a cruel summer for Mitt Romney on the Iowa Electronic Markets (IEM).
Polls show a tight race between Romney and President Barack Obama on the eve of the Republican National Convention, but the two are heading in opposite directions on the IEM. Romney’s contract price on the IEM’s Winner Take All market has dropped by 16 percent since reaching its peak of 47.6 cents on June 10. It was trading at 40 cents Friday morning after having gone as low as 36 cents earlier in the week.
That means the market believes Romney has a 40 percent probability of winning the popular vote in November.
And as Romney has trended down through the record hot summer, Barack Obama has trended up. The price of his contract on the Winner Take All market bottomed out at 53 cents on June 13, but was trading for 61 cents on Friday. That means traders believe he has a 15 percent higher probability of winning the popular vote than he did two months ago.
There's been significant movement as well on the IEM’s Vote Share Market, which predicts the percentage of the popular vote that each candidate will receive, although traders give Obama an edge there, too. Obama’s contract was trading at 57.8 cents Thursday morning, up from the 52 cents it was trading at on Aug. 8. That means traders believe that as of the most recent trading, Obama will receive 57.8 percent of the popular vote between the two candidates.
Meanwhile, Romney’s price has fallen from a peak of 48.9 cents on Aug. 10 to 45.5 cents this morning, which means traders believe that as of the most recent trade, he will receive 45.5 percent of the popular vote between the two candidates.
The Vote Share market does not count votes of candidates outside the two major parties.
A real money futures market operated by the University of Iowa’s Tippie College of Business, the IEM gives traders the opportunity to buy and sell contracts based on what they think the outcome of a future event will be. Contracts for the correct outcome pay off at $1, all other contracts pay off at zero. As a result, the price of the contract at any given time is the probability that the traders believe that event will happen. Traders can invest up to $500 in the market.
The latest general election market prices are available at iemweb.biz.uiowa.edu/quotes/Pres12_quotes.html. More information on the IEM—including information on opening a trading account—is available at tippie.uiowa.edu/iem/markets/.