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CONTACT: GEORGE MCCRORY
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Release: Aug. 17, 1999

Straw Poll has little effect on Iowa Electronic Markets

IOWA CITY, Iowa — The outcome of Saturday’s Iowa Straw Poll has had little immediate effect on the going price for shares for Republican candidates in the Iowa Electronic Markets (IEM) with share prices for Texas Gov. George W. Bush remaining stable and showing that he retains a commanding lead in the race for the GOP nomination for President.

Based on IEM trading in past U.S. elections, polls tend to have little effect on market prices, according to Robert Forsythe, a professor of economics and Senior Associate Dean in the University of Iowa Henry B. Tippie College of Business. This means that traders find little, if any, new information in polling numbers. But a candidate unexpectedly dropping out of the race will affect share prices as will any other event that surprises traders, he said.

"The vast majority of campaign events seem to be anticipated by traders. Over the course of a campaign, there are usually only a handful of events that move the market," said Forsythe, one of the UI business professors who oversees the IEM.

As of Tuesday, share prices for Bush remained mostly unchanged at 74 cents, but shares for second-place finisher Steve Forbes nudged up two cents to 9 cents from 7 cents last week. Shares of former Vice President Dan Quayle have dropped to nearly zero at .003 cents, while Elizabeth Dole shares remain in the three-to-four-cent range.

However, shares in a rest-of-field contract dropped from 15 cents last week to 10 cents Tuesday, with traders reacting to Lamar Alexander's withdrawal from the race. Traders have not seen any other viable candidates in the rest of the pack, Forsythe said. The rest-of-field contract includes other candidates such as Gary Bauer or Pat Buchanan who are not listed among the front-runners in the IEM field.

The Iowa Electronic Markets are web-based political futures markets at http://www.biz.uiowa.edu/iem run by professors in the Tippie College of Business. Although the Iowa Straw Poll is over, political enthusiasts may buy shares in candidates they think will be the Republican nominee for president. For as little as $5 or as much as $500, IEM traders buy contracts in a candidate at prevailing market price. Winning contracts pay $1; losing contracts pay nothing. The IEM also has markets for the Democratic presidential nomination, the New York Senate race and congressional control.

Started in 1988 at the UI, the IEM was developed as a way to teach students about commodities futures markets and permit detailed studies of how those markets operate. The IEM has forecasted election results with great accuracy, tracking the vote totals of winning candidates of the last two presidential elections within two-tenths of a percentage point.

After the Straw Poll on Saturday the IEM had some of its highest activity in the last two months. But Forsythe expects even more activity later this month when more than 100 colleges and universities around the country start using the IEM in their classes. In the 1996 presidential markets, UI business professors managed 7,000 accounts with a total equity of more than $200,000.

For more information, contact IEM operations office at (319) 335-0794 or Forsythe at (319) 335-0865. Detailed trading information can be found in the IEM website at http://www.biz.uiowa.edu/iem/