More on Manipulated Markets

In a previous post I speculated about politically driven manipulation of online political futures markets. As I noted then, other bloggers also thought something was amiss.

Today’s Intrade press release acknowledges attempts at manipulation:

A wave of heavy selling hit the George Bush re-election contract on
Intrade Friday driving the market down to all time lows before recovering.

“Our exchange operations staff continuously monitors our markets and
reported that a very large sell order hit the Bush Presidential contract at
approximately 1:30 pm EST on Friday October 15th”, said Chief Executive
Officer John Delaney.

“The sell order caused the market to trade at new lows before
recovering to earlier levels. The exchange has more than 40,000 members,
after assessing there was no news to cause the decline, traders quickly
started buying and within 3 minutes the market fully recovered to price
levels seen prior to the sell order being executed” says Delaney.

Some question if the market can be manipulated with such heavy selling
or buying.

“All emerging markets will experience volatility, we are gratified
that the market recovered so quickly and without any intervention on our
part. This demonstrates the market’s resiliency, that the Intrade exchange
is the destination for serious traders in political contracts and that the
utility of the market as a price discovery mechanism is firmly intact” says

Post-debate sell off hits Bush contract

The Intrade Bush contract has become the battle ground of wills between
a cadre of large, well financed rogue traders seemingly bent on driving down
the Bush re-election contract and a growing list of financial traders who
think they can predict the outcome of this election.

Some question if George Soros is behind these market moves.

[. . .]

And Don Luskin further develops his argument.

I have an increasingly strong feeling that Bush will win overwhelmingly.

(Related posts: Here, Here and Here)

13 thoughts on “More on Manipulated Markets”

  1. Intrade won’t intervene, nor should they. Manipulation attempts of this type are buying opportunities. By now there are probably lots of new buy orders under the market, waiting for the next big selling attempt. (Luskin mentioned that he had placed such orders. I’m sure other people have too.)

  2. Robert, thanks, but I’m not pessimistic. I was worried and wavering a few days ago, but now it looks like Bush’s support is strong. I think he’ll win big.

  3. Bloomberg story:

    Iowa Presidential Market Surpassed by Dublin Exchange (Update1)
    2004-10-18 07:56 (New York)

    By Danielle Sessa
    Oct. 18 (Bloomberg) — The University of Iowa’s market for U.S. presidential futures, founded 16 years ago, has been overtaken by a Dublin-based exchange that is now 25 times larger.
    Investors betting on the race between President George W. Bush and Democratic challenger John Kerry have purchased
    contracts worth more than $4 million on Intrade, better known by its Web address. The Iowa Electronic Markets, a not-for-profit wagering system, has a potential payout of
    “TradeSports is a more efficient market and a deeper market,” said Scott Johnston, a money manager at Peconic Management Company, a hedge fund in Bedford Corners, New York. “I probably watch this more than any human being.”
    The heightened interest in online political gambling reflects the close race between Bush and Kerry, the four-term Senator from Massachusetts. Some investors such as Johnston, and political strategists including Washington-based Thomas Gallagher of International Strategy & Investment Group Inc., look at the
    markets to help predict the likely winner.
    Bush has an 8.9 percentage-point lead over Kerry on Intrade and a 19.9 percentage-point advantage in the Iowa market. Before the first of three presidential debates on Sept. 29, Bush led Kerry by at least 30 percentage points on both markets.
    The candidates are in a statistical tie for voter support in four national polls taken by the Washington Post, Reuters/Zogby International, Time Magazine and Washington-based George Washington University. Bush led Kerry in a USA Today/CNN poll conducted by the Utica, New York-based Gallup Organization and in
    a Newsweek poll. All the polls were released since the Oct. 13 presidential debate.

    Not for Profit

    Johnston, a Republican who plans to vote for Bush, has been tracking Intrade contracts on Bush winning individual states for more than a year. He plugs the data into a model he built that calculates the number of electoral votes Bush will win. His results through Oct. 13 showed Bush receiving 280 electoral votes, 10 more than the 270 needed to win the election.
    “Being in the hedge fund business, I am a numbers geek,” said Johnston, who declined to comment on whether he wagers on the site. “I thought there was a better way to look at elections than polls.”
    The Iowa Electronics Market, run by Iowa’s Tippie College of Business, has correctly picked the winner of three out of the past four presidential elections. Professors George Neumann, Robert Forsythe and Forrest Nelson hatched the idea for a presidential futures market after polls failed to predict Jesse
    Jackson winning the Michigan democratic primary in March 1988.
    The three were drinking drafts of Heileman’s Special Export at the Airliner, a bar across the street from the business school
    in Iowa City, when they saw on television that Jackson defeated Michael Dukakis. Polls predicted Dukakis, the party’s eventual
    nominee for president, the winner.
    “Dukakis was widely seen as the leader; it was a shock to see Jesse Jackson win it,” said Neumann, 57, who has taught at Iowa for 20 years. “I went home and wrote up a proposal saying we want to run an electronic market and see if the market could do a better job than the polls.”

    Predictive History

    The Iowa market forecast George H.W. Bush winning in 1988 and Bill Clinton in 1992 and 1996. It incorrectly predicted George W. Bush taking the popular vote in 2000. Democrat Al Gore
    got the majority of the votes though Bush became president after the Supreme Court stopped a recount of votes in Florida, giving Bush more than the votes required in the Electoral College.
    Scott Stanzel, a spokesman for the Bush campaign, said the futures market isn’t “something we follow, so we’ll decline
    comment.” David Wade, a spokesman for Kerry, responded by asking whether Intrade’s growth represented “the latest example of
    George Bush’s outsourcing policy hurting Iowans.”
    “The problem with on-line polls is that they are not representative of the electorate as a whole,” said Greg Strimple, a Republican pollster with Mercury Public Affairs in
    New York. “Do they screen for likely voters, do they have the proper balance by age and ethnicity?”
    Intrade, which has no track record of forecasting presidential elections, offers members 66 ways to bet on the race. Its 40,000 members can wager on Bush winning the popular
    vote, the electoral vote and each of the 50 states.
    On the Iowa market, its 3,050 traders can buy a contract on who they forecast will win the majority of the vote and if that margin is more or less than 52 percent. They can also wager on
    what percentage of the popular vote each candidate will receive.

    Average Trading

    Contracts on both markets are on a scale of zero to 100. Winning contracts climb to 100, paying out $10 on Intrade and $1 on Iowa. Losing contracts fall to zero and expire worthless.
    There are more than 400,000 contracts outstanding related to the presidential election on Intrade, said spokesman Mike Knesevitch. Iowa tallies 162,000 futures contracts that have not
    closed, according to Joyce Berg, a professor at Iowa.
    Contracts on Bush winning re-election priced at 54.5 as of 7:50 a.m. in New York on Intrade, while futures on Kerry being
    elected traded at 45.6. Bush contracts were at 60.2 on the Iowa market and Kerry futures were at 40.3.
    An average of 14,680 contracts have traded a day from Sept. 30 to Oct. 12 on the Iowa market, Iowa professor Thomas Rietz
    said. Anywhere from 12,000 to 29,000 political contracts change hands everyday on Intrade, said Knesevitch.

    No Maximum

    Intrade, which is owned by Trade Exchange Network Ltd. in Dublin, requires $100 to open an account and there is no maximum wager. The exchange charges its members 4 cents per trade and another 4 cents when a contract expires.
    The traders on the Iowa market need a minimum of $5 in an account and maximum of $500. There is a one-time charge of $5 per
    Joseph Quinlan, chief market strategist at Banc of America Capital Management, said he prefers to track the election on the Iowa market.
    “It’s been around longer and it has a decent track record,” said Quinlan, a Pennsylvanian Republican who said he hasn’t yet decided which way he will vote.
    John Delaney, chief executive of Trade Exchange, said harnessing people’s enthusiasm for sports and politics was behind the launch of Intrade in August 2001.
    “Listing contracts that are based on subject matter that people are passionate about is something the business believed was the right way to go,” said Delaney, 35.

    More Accurate

    He was among a group of half a dozen people in the finance, technology and legal industry that came up with the idea for Intrade. They first offered futures in which football team would win the Super Bowl and when Iraqi leader Saddam Hussein would be
    While Johnston of Peconic Management prefers TradeSports to observe political wagering, he said both markets are better than
    polls in predicting election results.
    “The University of Iowa proved over the course of 15, 20 years that information markets are more accurate than polls because they are real people using real money,” he said.
    “Whether you use them to make wagers or not, there is useful information for anyone.”

    –With reporting by Michael Forsythe in Washington and Jay Newton- Small in Washington. Editor: Merz, Kraus, Serafino

  4. Scott Stanzel, a spokesman for the Bush campaign, said the futures market isn’t “something we follow, so we’ll decline

    David Wade, a spokesman for Kerry, responded by asking whether Intrade’s growth represented “the latest example of George Bush’s outsourcing policy hurting Iowans.”

    “The problem with on-line polls is that they are not representative of the electorate as a whole,” said Greg Strimple, a Republican pollster with Mercury Public Affairs in New York. “Do they screen for likely voters, do they have the proper balance by age and ethnicity?”

    The cluelessness here is bipartisan.

  5. They are ratios used to make bets, like in horse racing. Say it says Democrat 6/5 that means a bet of five will pay six betting the Democrats to win. So if you were to bet $100 on Kerry to win, and he did, the bookie would pay you $120.

  6. The UK betting sites seem to favor Bush, and that’s their own money on the table. Click on some of the toss-up state bets. They’re thinly traded, but they’re there. It’s illegal to bet on the election in Nevada, an insupportable restriction on political speech in my book.

    Jonathan – do you think Mr. Soros would mind telling me when he will be throwing more money away? I have to work, so I can’t watch the futures all day.

  7. Mitch, there is no need to ask anyone. All you have to do is open an account and place some bids. If they sell, you will buy. Of course by now there are probably a lot of bidders waiting for just such an opportunity, which makes a big, profitable price spike less likely, but you never know.

  8. this is regarding trading at Intrade. I want to know what happens when the event is completed and I havenít sold the contract. Say in the Bush Vs Kerry election I bought a contract at 62.5 and waited till the election and say if Bush won the contract will close at 100. But who pays me 100? Since I havenít sold it there must be someone who will buy the contract from me at 100, I want to know who is that ?

  9. It would be Intrade, since Intrade functions as a clearing house (i.e., acts as a seller to every buyer and vice versa). In the absence of a clearing house it would be the person on the other side of the contract that you hold.

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