Obama up, Romney down on IEM
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After two weeks of political party conventioneering, traders on the Iowa Electronic Markets (IEM) believe President Barack Obama has a significantly higher likelihood of winning the popular vote on Election Day.
As of Monday morning, a contract for Obama was selling for 68 cents on the IEM’s Winner Take All market, which means traders believe there’s a 68 percent probability that Obama will win the popular vote. He was selling for 55 cents on Aug. 27, the day the Republicans convened in Tampa, which means traders believe he has a 23 percent higher probability of winning the popular vote than he did two weeks ago.
Meanwhile, a contract for Mitt Romney was selling for 32 cents Monday morning, down 32 percent from the 47.1 cents he was selling for at the start of the two week convention period.
While the trend line shows a convention bounce for Obama, most of it came during the Republican convention, not his own. Obama’s contracts were selling for 66 cents on Sept. 4, the start of the Democratic convention, 11 cents higher than they were a week earlier. They’ve increased in price only 2 cents during the subsequent week.
The price of a Romney contract dropped 10 cents during his own convention.
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/.