CONTACT: GEORGE MCCRORY
300 Plaza Centre One
Iowa City IA 52242
(319) 384-0012; fax (319) 384-0024
Release: Oct. 17, 2002
Iowa Electronic Markets leaning toward status quo in U.S. Congress
The latest trading in the Iowa Electronic Markets (IEM) shows that the Republicans
are likely to retain control of the House of Representatives after the November
elections, while Democrats are likely to retain control of the Senate.
As of Oct. 18, the IEM Congressional Control market shows an 82 percent
probability of Republican control of the house, and a 61 percent probability
of Democrats controlling the Senate.
Through its web-based futures market, the IEM provides political pundits
and neophytes alike the opportunity to predict whether the Democrats or Republicans
will control Congress after the November congressional elections. Traders
can back up their predictions by buying and selling futures contracts in the
IEM based on different election outcomes. Six professors at the Henry B. Tippie
College of Business at the University of Iowa opened the market in July.
Prices in this market can fluctuate rapidly with new information, such as
campaign news or actions by the candidates. Around Oct. 1, there was volatility
in the IEM after Sen. Robert Torricelli (D-New Jersey) dropped out of the
Senate race and after the accusations of impropriety in Sen. Tom Harkin's
(D-Iowa) campaign, said Thomas Rietz, IEM co-director and associate professor
of finance at the Tippie College. Traders gave the Republicans the edge in
the Senate race for a short time, but the market returned to its earlier levels
when former Sen. Frank Lautenberg stepped in to take Torricelli's place
IEM predictions are often more accurate than poll results because traders
are investing real money and "put their money where their mouths are,"
Rietz said. It also tends to attract people who are interested in politics
and are therefore more likely to make informed decisions, he explained.
The IEM has approximately 17,200 traders and $152,000 in equity See a prospectus
and current prices at http://www.biz.uiowa.edu/iem/markets/Cong02.html.
The IEM is a small-scale, real-money market used as a teaching and research
laboratory. For an investment of as little as $5 or as much as $500, trading
in the markets is open to participants worldwide. At the close of trading
on Nov. 7, the liquidation value of the contract that represents the actual
outcome of the election will be $1. All other contracts will have a value
Since its beginning in the 1988 U.S. Presidential election, the IEM has
established a reputation for forecasting election results with great accuracy,
with an average prediction error of 1.37 percent.
For more information, see the Iowa Electronic Market website at http://www.biz.uiowa.edu/iem
or contact the IEM office at (319) 335-0881.