What’s Up With Intrade?

I’m watching Intrade’s Bush-reelection mkt and reading comments on Lex’s recent post about the election.

I agree with the commenter who suspects manipulation. The mkt’s acting like there’s a big, aggressive seller: there are size bids, but only small resting offers below about 53. The seller is the only one tightening the mkt. Also, IIRC (and I may not be), it appears there’s been huge volume in the past hour or so.

This behavior doesn’t quite fit the pattern that observers noticed in the mkt earlier, where someone came in when the mkt was thin and spiked it down quickly by taking out a lot of bids. Today’s price action looks more like the scenario I hypothesized about, where someone is willing to spend hundreds of thousands to hold the mkt down, for an extended period, by entering a stream of sell orders in small units. Not as dramatic as the big plunge, but perhaps more believable to uncommitted or easily-discouraged voters. (And anyway, there are probably now so many resting bids at lowball prices that the mkt can no longer be spiked.)

If I were George Soros I’d do the same thing.

(Related post here)

UPDATE: Don Luskin shares another theory.

26 thoughts on “What’s Up With Intrade?”

  1. Does anyone know if there have been any studies of polls that show people tend to want to vote for the winner? If they do then I would guess Ginny’s speculation on Soros and his theory of “reflexivity” (positive feedback loop) are spot on, and either he or someone like him are selling.

  2. Don’t you think it is the 380-ton explosives story that hurting Bush? I think Kerry has implemented doubt in voters’ mind about the administration’s competence. Rightly or wrongly the charges of too few troops, neglect, mismanagement of Fallujah/Najaf, Abu Ghraib, and lack of security in Iraq are coming together to hurt Bush. And last night PBS (WETA in DC area) ran this very one-sided Frontline documentary, titled Rumsfeld’s War, about how bad the war planning was.

    This market conspiracy theory sounds too hard to believe. I was also tracking Iowa today and the movements seemed to be correlated between the two markets.

  3. No, not really.

    380 is what, about .05% of the explosive in Iraq?

    So, less than .1% missing exlosive means not enough troops?!?

    This is a very familiar story line.

    President blamed for something beyond his control. Unauthorized person asserts alternative possiblity, places blame, and then all the sudden footage of explosives comes out. Then, it’s not he bombings, it’s the cover up. Comprende?

  4. Maybe enough voters actually believe that stuff. I don’t see it, but then I thought there was no way someone like Clinton could be elected and reelected. War is always a messy business. Do that many people really believe that Kerry & Co. would obviously do a better job? I suppose that’s the big question.

  5. BTW, I think that the fact that the mkt rebounded to around 53 is more consistent with the gamesmanship theory than with any anti-Bush revelations.

  6. Aaron: “President blamed for something beyond his control” ==> I am talking how voters perceive things, not what the objective facts are. Remember, not many people really care about politics like we do and they vote based on perceptions they have developed over time. Getting elected is like marketing: Product, Price, Positioning, Promotion. Bush may have the right product (at least according to you and I) but he may not have priced, positioned, and promoted it well.

  7. Yeah, it’s definately a possibility, but I think most swing voters are too cynical to change their vote on this.

    Then, it did happen in Spain.

    Another question is in what window of time do people develop their perceptions, and do they carry more than one perception. A person casually following the news may feel one way or another day to day, but when they reflect upon the past years and what they know about how the world works, some forgotten perceptions may come back to them. They may realize that they’ve been distracted.

  8. Aaron: “They may realize that they’ve been distracted” ==> This is why there is a Federal election every two years. Should Kerry win because of the 380-ton leak (check out Friday’s WSJ editorial), 2006 will be payback time like the 94 mid-term election.

  9. I would tend to agree with Jonathon. I’m not an Economist, and only a Chicago boy by birth, but I have watched the steady climb to about 56 in the last couple days to a drop of almost ten points in 48 hours, just to now see it pop back up to 51. In fact, Jonathon said it had bounced back to 53, so someone may have let it self-correct for a a while to look more natural and may be in the process of dropping it again.

    My other thought was that it may be a Bush supporter who is actually hoping to drive the buy price down so that a Bush win pays out more. I recall a story of a 15 year old kid who played expectations in the stock-market after artificially deflating mid-cap stocks to buy and then artificially inflating them to sell, all via day-trading message boards. It seems that, albeit expensive now, this person (or group of people) are hoping to deflate the price so low that they can buy them all up and make a bigger profit than the loss they engendered by selling off low now.

    Even if this is a losing scenario, its possible that such a market actor is just a green economist who doesn’t see the forest for the trees and/or is just conducting an experiment…

    Never attribute to malice what can be explained by stupidity.

    Just my $.02

  10. Paul – I find it hard to believe both Iowa and Intrade were both manipulated at the same time. Again, I think the recent news leaks, including the $70bn extra the Bush will be requesting, have done the damage. The volatility at slightly above 50% for Bush is just market trying to find the correct price due to the new information.

  11. Sulaiman – most markets are arbitraged. If the transaction costs to trade in two markets are zero they will move in synch with eachother perfectly, and the manipulator only needs to trade in one market (the arbitrageurs do the rest). As the costs grow to trade in each market the fluctuations between the two markets increase. What are the costs to trade in Iowa and Intrade?

  12. Aaron, that would indicate to me that there is some artificial actor at work on the Bush numbers. One would expect that if people were truly abandoning the Bush contracts, they would be trying to pick up the Kerry contracts before their price jumped (like the Arafat leaving the West Bank contracts).

    Again, though, I am not an economist. I quite often, and most likely in this case, do not know what I am talking about. :)

  13. A major gives a brief to the press today that he was in charge of a team that removed and destroyed a very significant percentage of the alledged missing explosives, and Intrade is moving steadily down to 50, despite being up earlier today before the announcement.

    Now it’s under 50. So much for the idea that this is the market reacting to Bomb Gate. This is all very fishy.

  14. It would be great to see a plot of trades over the last few weeks, specifically when and in what volume they occured.

  15. Interesting. As the news about OBL builds, the numbers are spiking back over 54. Maybe Soros relaxed and the numbers are rebounding, or maybe its spiking despite him :O)

  16. Or OBL has almost nothing to do with anything anymore and the psychological effects of the spike have worn off.

    The OBL deal is only big election news if the press decides to make it so. I hate how analysis of news has become reportable news.

  17. Hey, maybe they’re buying votes. Maybe if they get people to take a financial position favoring Kerry, they’ll vote for him out of self interest.

  18. Presidential Vote Equation–October 29, 2004
    The predictions of GROWTH, INFLATION, and GOODNEWS for the previous forecast from the US model (July 31, 2004) were 2.7 percent, 2.1 percent, and 2, respectively. With the release of the NIPA data on October 29, 2004, all the actual economic data are available for the vote prediction. The actual values (as of October 29, 2004) of GROWTH, INFLATION, and GOODNEWS are 2.9 percent, 2.0 percent, and 2, respectively.

    Given that the actual economic values are close to the values used for the previous vote prediction, the current vote prediction is little changed. The new economic values give a prediction of 57.70 percent of the two-party vote for President Bush rather than 57.48 percent before.

  19. I have posted Prof Fair’s prediction from Friday above. It is clear that some one was bombing Intrade all week. This weekend it seems to be coming back, as does Iowa.

    Chazak, Chazak, ve-nit’chazek

    Be strong, Be Strong, Let Us Strengthen Each Other

    II Samuel 10:12

  20. Sorry, late to comment, but I was watching the IEM futures during the voting, and someone was gaming the contracts heavily. At one point around midday, I saw trades at .15 for Bush, and noticed that the day’s history showed even lower counts.

    Of course, by the time Ohio was being counted, the trading shot up around .70.

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