The University of Iowa
The University of Iowa News Services Home News Releases UI in the News Subscribe to UI News Contact Us

 


CONTACT: GEORGE MCCRORY
100 Old Public Library
Iowa City IA 52242
(319) 384-0012; fax (319) 384-0024
e-mail: george-mccrory@uiowa.edu

Release: July 13, 1999

UI offers electronic stock market for New York Senate race

IOWA CITY, Iowa — Will Hillary Clinton or Rudolph Giuliani be the next senator from New York? You can buy shares of either candidate in the Iowa Electronic Markets (IEM) to back up your choice.

Professors at the Henry B. Tippie College of Business at the University of Iowa have opened a web-based electronic stock market at http://www.biz.uiowa.edu/iem/ where traders can speculate about the outcome of the 2000 New York Senate race.

In addition to contracts paying $1 for a win by Democrat Hillary Clinton or Republican Rudolph Giuliani, the IEM has contracts on three other outcomes: if another Republican is elected, if another Democrat is elected, or if an independent from neither party is elected. Contracts for losing candidates pay nothing. As the contest for the U.S. Senate race in New York unfolds, new candidate-specific contracts may be introduced.

Since the New York Senate market opened in mid-June, share prices in early light trading for Clinton and Giuliani have been very close, with Clinton having a slight edge. As of July 8, Clinton shares were at 41 cents and Giuliani shares were at 38 cents.

Robert Forsythe, a co-founder of the IEM and senior associate dean in the Tippie College of Business, said the IEM governors chose the market because of its national interest.

"We've run markets on Senate races before with varied interest, but the New York market is already trading well. There is worldwide media interest in these candidates, which gives our traders a great deal of information to use in making decisions about their contracts," Forsythe said.

The IEM also has markets on the outcomes of the 2000 Congressional elections and the Republican and Democratic nominations for president, where George W. Bush and Al Gore have commanding leads. A winner-take-all market will open on the outcome of the general presidential election after the party conventions in August 2000.

Accounts in the New York Senate market can be opened for as little as $5 and as much as $500. The markets are open to the public, and anyone can buy contracts in a candidate of choice. There are no commissions; traders just mail a check and an application to the IEM at the Tippie College of Business to open an account.

Started in 1988 by four UI professors, the IEM was developed as a way to teach students the intricacies of the commodities futures markets and permit detailed studies of how those markets operate. It has also tracked overseas elections, including the Russian presidential elections and recently the German parliament.

The IEM has forecasted election results with great accuracy. In the past two presidential elections, the IEM tracked the vote totals of the winner within two-tenths of a percentage point, beating estimates from opinion polls.

The premise behind the IEM is that voters don't necessarily tell pollsters the truth, but will register their true choices when their own money is on the line, Forsythe said. Throughout its history, traders have bought or sold shares based on bits of information they felt affected the chances the candidates had of winning or losing elections. In 1996, the IEM influenced trading on Wall Street with its projections about a Democrat-controlled Congress.

The Commodity Futures Trading Commission (CFTC) regulates the IEM and has issued a "no-action" letter to the IEM, stating that as long as the IEM conforms to certain guidelines, the CFTC will take no action against it.

As the 2000 election draws closer, Forsythe says the number of traders playing and the amount of money on the line will grow substantially. In the 1996 presidential markets, the UI business professors managed 7,000 accounts with a total equity of more than $200,000.

While IEM traders include many stockbrokers, political junkies and computer technicians, its primary audience is students. More than 100 colleges and universities have used the IEM in their accounting, economics, finance and political science classes.

Forsythe expects trading to be heavy for the 2000 elections, with more people using the Internet as a financial and political tool. All trades are done via web-based trading software developed by UI economics professor Forrest Nelson and accounting professor Joyce Berg. The web-based trading format should be familiar to those who trade stocks through online brokerages, Forsythe said. Until earlier this year, the IEM had used a Telnet connection in the past, so the web version should be easier way to trade, he added.

For more information, contact Jeanine Pfuntner, the operations manager of the IEM 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/