CONTACT: GEORGE MCCRORY
100 Old Public Library
Iowa City IA 52242
(319) 384-0012; fax (319) 384-0024
Release: July 13, 1999
UI offers electronic stock market for New York Senate
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
where traders can speculate about the outcome of the 2000 New York Senate
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
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
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,
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/