Markets Aren’t Nice

Intrade’s contract on Bush’s reelection shortly ago experienced a sudden (and heart-stopping for Bush supporters) price drop from around 62/64 to around 50. When I first noticed it I thought some very bad news must have come out. However, there was no news on Drudge, and a glance at the contract’s intraday price chart showed a spike down, suggesting that someone had come in with a large sale in a thin lunch-time market. The price was already recovering when I started paying attention, and soon returned to around 60 where it is now. It looks like the seller either made a mistake, selected a bad time to initiate or liquidate a position, or was trying to set off stops into a resting bid — IOW, typical short-term market behavior with no long-term implication. Sure scared the crap out of me, though.

UPDATE: EconoPundit also wants to know what happened.

UPDATE2: As of around 6:00 PM CST the market has recovered to its pre-spike level, with size bids and offers around 62/64.

UPDATE3: EconoPundit attributes the spike down to a big seller trying (unsuccessfully) to punish those who bet on Bush.

12 thoughts on “Markets Aren’t Nice”

  1. -The Iowa contract is defined differently than Intrade’s, and, more important here, its price is not frequently updated.

    -I don’t think it was bad data. I looked at the contract’s B/A price table as soon as I saw that the mkt had dropped. It was thin. Size bids came in at increasingly high levels as the mkt worked its way back to 60-ish. It behaved exactly like any exchange-traded electronic mkt after a big sell order takes out the resting bids and triggers stops. You get a quick plunge, then confusion, then bids come in and the price slowly returns to slightly below where it was before the event.

  2. Good question. It would be against Intrade’s rules, as would also be the case at other exchanges, but that doesn’t mean nobody would try to do it.

  3. Jonathan and I were talking about this while it was happening today. It would have made my day if some liberal had punched in a couple too many zeros when they hit the trade button. No “fat finger” functionality on these sites.

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