Want to find out who the financial markets think will be the next US president but don’t have the time to pore through a forest’s worth of research? Take a look at the futures exchange dedicated to tracking just that.
The Iowa Electronic Markets is an online exchange set up in 1988 by the University of Iowa Henry B Tippie School of Business as a research aid for students. It has since become so accurate a forecasting tool that investment banks defer to it with some reverence. Merrill Lynch has used it in its analysis of several US elections and Barclays Capital’s chief US economist Henry Willmore cites it as a good indicator of the likely outcome of the Bush-Gore race.
The IEM offers a number of markets, including those based on likely company EPS results and stock price returns, but it is their political markets which are best known, and the only ones open to non-students.
There are two markets for the presidential election: a winner-takes-all market, where only those backing the winner get a payout; and a vote share market, by which winnings are calculated according to the percentage of the popular vote each candidate gets. If, therefore, the Reform Party Candidate wins 15% of the vote, the payout is 15 cents on the dollar.
There are also contracts for the New York Senate race, in which Hillary Clinton is the Democrat candidate, and for the Congressional elections.
Contracts can be bought for between $1 and $500. But take a good look before you jump.
The congressional contract appears to rule out the Democrats winning the Senate, while the election for the House is very close, with the Republicans inching ahead. Both presidential contracts are neck and neck. It’s very different to 1996, where the IEM showed Clinton storming ahead of Bob Dole by mid-year. You can find, Iowa’s markets at https://www.biz.uiowa.edu/iem/index.html
