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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?

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what is the iem
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 iem3
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
what is the iem4
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.
benefits from the iem
Benefits from the IEM
  • Research
  • Teaching
  • External Support – Microsoft, National Science Foundation, FIPSE (U.S. Dept. of Ed.), NASDAQ Foundation
  • Media Coverage
example 2004 presidential vote share market
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
example 2008 presidential winner takes all market
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
iem growth
IEM Growth

Year Invested

1988 $ 4,967

1992 $ 83,226

1994 $ 42,000

1996 $213,160

2000 $244,326

2004 $340,756

market properties
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?
market properties13
Market Properties
  • Relative to Polls
    • Who is being sampled?
    • Which responses are used?
    • How are undecided allocated?
what have we learned
What Have We Learned?
  • The average trader is biased – partisanship matters
  • Biased traders AND market accuracy? Yes
  • Marginal traders
winner take all
WINNER TAKE ALL

Dem versus Rep Aggregate Probabilities

web site
Web site

http://www.biz.uiowa.edu/iem