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The Iowa Electronic Markets

The Iowa Electronic Markets What is the IEM? Electronic futures market under CFTC regulatory purview Trading occurs over the Web Traders buy and sell contracts tied to political and economic events: political outcomes economic events earnings or returns outcomes What is the IEM?

JasminFlorian
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The Iowa Electronic Markets

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  1. TheIowa Electronic Markets

  2. What is the IEM? • Electronic futures market under CFTC regulatory purview • Trading occurs over the Web • Traders buy and sell contracts tied to political and economic events: • political outcomes • economic events • earnings or returns outcomes

  3. What is the IEM? • More specifically: • Political outcomes • Vote/seat shares • Winning candidates • Earnings or returns outcomes • Corporate earnings • Movie box office receipts • Stock returns and price levels • Economic events • FOMC decisions

  4. What is the IEM? • History: • Begun in 1988 • Conducted on elections in Austria, Australia, Canada, Denmark, Finland, France, Germany, The Netherlands, Russia, Sweden, Taiwan,Turkey and the U.S.

  5. Benefits from the IEM • Research • Teaching • External Support – Microsoft, National Science Foundation, FIPSE (U.S. Dept. of Ed.), NASDAQ Foundation • Media Coverage

  6. The IEM in the News

  7. Vote Share Market REP08_VS: Payoff: $1 x Republican nominee’s share of 2-party vote Price: Predicts Republican nominee’s vote share DEM08_VS: Payoff: $1 x Democratic nominee’s share of 2-party vote Price: Predicts Democratic nominee’s vote share Example: 2004 Presidential Vote Share Market

  8. Winner-Takes-All Market REP08_WTA: Payoff: $1 if Republican wins in 2008 Price: Predicts Republican’s chances of winning DEM08_WTA: Payoff: $1 if Democrat wins in 2008 Price: Predicts Democrat’s chances of winning Example: 2008 Presidential Winner-Takes-All Market

  9. IEM Growth Year Invested 1988 $ 4,967 1992 $ 83,226 1994 $ 42,000 1996 $213,160 2000 $244,326 2004 $340,756

  10. Market Properties • Price discovery and is it efficient? • Collection, aggregation and dissemination of information • Will motivated traders get you the best aggregated wisdom about an election?

  11. Predictive Accuracy

  12. Powell Nomination Market

  13. Market Properties • Relative to Polls • Who is being sampled? • Which responses are used? • How are undecided allocated?

  14. What Have We Learned? • The average trader is biased – partisanship matters • Biased traders AND market accuracy? Yes • Marginal traders

  15. DEMOCRATIC NOMINATION

  16. REPUBLICAN NOMINATION

  17. DEM vs REPVOTE SHARE

  18. WINNER TAKE ALL Dem versus Rep Aggregate Probabilities

  19. Web site http://www.biz.uiowa.edu/iem

  20. TheIowa Electronic Markets

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