Oct. 5, 2011
Romney contract benefits from major moves on Iowa Electronic Markets
Big news caused big movement on the Iowa Electronic Markets' Republican nomination market Tuesday, as traders flocked to Mitt Romney after news broke about Chris Christie and Rick Perry.
The price of the markets' Rest of Field contract, which in part represented Christie's candidacy in lieu of an individual contract, reached as high as 30 cents in morning trading on Tuesday following word that he would make an announcement later in the day.
But when word leaked that he would announce he was not running for president, the price of that contract plunged to 15 cents within minutes. The contract was trading for 14.5 cents Wednesday morning.
The price of each contract on the IEM represents the probability that traders believe that candidate will be the GOP nominee.
Meanwhile, Perry's contract took a similar beating after a new Washington Post-ABC News survey showed a significant drop in popularity among Republican voters for his candidacy. Perry's contract, which had been trading at 24 cents before the news broke, dropped to 11 cents within hours. This morning, the price had rebounded slightly to 15.5 cents, which means traders believe there is a 15.5 percent probability that Perry will be the nominee.
The biggest beneficiary of all this movement was Romney, who became the safe harbor of sorts for traders as the price of his contract soared from 48 cents to 75 cents in the afternoon. By Wednesday morning, Romney was trading at 69 cents.
Other contracts on the market include Michele Bachmann, trading at 2.5 cents Wednesday morning, and Ron Paul, trading at .3 cents.
A real money futures market operated by the University of Iowa's Tippie College of Business, the IEM gives traders the opportunity to buy and sell contracts based on what they think the outcome of a future event will be. Contracts for the correct outcome pay off at $1, all other contracts pay off at zero. As a result, the price of the contract at any given time is the probability that the traders believe that event will happen. Traders can invest up to $500 in the market.
STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500.
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