Interesting.....

 

Alex...:

I strongly suspect price fixing is occurring in the betting on elections, at least on the intrade market.  I base that on the fact that these markets have relatively thin trading volumes, and I occasionally see a huge block of over a thousand shares push the price up, or another price down. These are positions that are WAY larger than those commonly put up. 

I have no problem with this "campaign financing", and welcome it with open arms.  A mosquito with small positions can quickly fly in, and take a little from these players, and get quite a return on investment.  

For instance, the intrade positions in 2006, on which party would take control of the house and senate were clearly out of whack.  I would see these huge positions push up the republican odds to completely unreasonable levels.  Taking the other sides of these trades would have been very lucrative. 

However, it does bring their accuracy into question.  Markets CAN be fixed, if the floats are small.  It is not at all illegal, so I think we should assume its occurring.  Most especially since every tin-horn journalist out there is constantly quoting them along with the polls.

One could say...well...everyone will see the inefficiency, and make it go away.  Sure, that would be true over time.  But with a budget of...say...a few hundred thousand, I could make any given such market go my way for a month or two.  Take a look at the volumes, and calculate it for yourself. 

 

Actually, research has shown the the election markets quickly dispell attempts at manipulation. Check out this paper for example

I put an  email  question to the Iowa  folks.   This criticism would seem to be a significant  shot  at the validity of the market experiment.   I have not  heard  from them as of yet.  If they reply I'll post the answer. 

No paper is posted. 

Regardless, it is hard for me to see how any paper would dispell the facts I presented in my original post.  "Quickly" would not be so quick, if the floats are thin, and the manipulator had sufficient cash.  It is really that simple, and no paper would convince me to disregard my own experience.  Do you have any experience on this subject, or are you in the habit of investing your money based on academic research?

Now if you could direct me to traders or market makers in these markets who disagree, I might be interested.  Who else is worth listening to?

 

The outcome of the experiment.....

 

By the way , I like your cirticism. Since we're just talking, once a week, I believe that the Iowa people may be more complicated than we anticipate, but this is just a thought......

Do you have a specific history of dealing with the IEM  ?   Sounds like it.  Sorry, I assumed  that you were making general statements about the concepts involved.  I couldn't find access to the numbers you were describing.

 

Supposedly the IEM has larger trading volumes than intrade, and by lmiting single accounts to $500 maximum the problem of fixing the market diminish with IEM.  A prospective challenge, currenty the media is abuzz with problems Obama is having with the Reverend Wright.  Are the wheels coming off the Obama campaign ?  Not so far on  the IEM. Lets see what happens in Indiana.

 

Right, my comments were about intrade only.  I know nothing at all about the Iowa Electronic Exchange. 

Yes, with a $500 limit, it would make market manipulation much more difficult.  At least, if someone insisted on doing it all with just one account.  But since I have never tracked those markets at all, I would not dare guess on how accurate they are. 

Thanks for all the information to all.  This discussion is also very interesting to me. 

Alex...:

 

One could say...well...everyone will see the inefficiency, and make it go away.  Sure, that would be true over time.  But with a budget of...say...a few hundred thousand, I could make any given such market go my way for a month or two.  Take a look at the volumes, and calculate it for yourself. 

 

 

The Iowa market, however, limits positions to $500 according to the prospectus.

Your argument assumes that the market could be rigged on a sustained basis for months on end. That would be hard to do.

 

 

Woodstock,

This ground was covered in prior discussion.  First off, I was only talking about the Intrade market, not the Iowa Electronic Exchange.  So my comments were in that context.  

But I am not so sure a $500 limit would entirely remove the possibility of fixing, it would simply require more effort.  As for how "difficult" it would be to do, that depends on the relative depth of such markets, and how much money one has to work with in comparison to that market depth. As I noted lower in the string, I see occasional HUGE positions put up on Intrade, which are fare outside of the normal trading size in the market.  These often seem to be at certain psychological points where I could imagine someone defending a certain level.  While these positions are very large for the market, they are really only a couple thousand each.  So it would in fact be quite possible to put up such large positions quite regularly. 

And manipulation is a matter of extent, not necessarily an absolute goal.  That is to say that if I could keep a market 10% more favorable to my candidate, that could be a tremendous difference in a close race.   If the race is a runaway, who cares about the predictive market as a poll anyway? 

I am not the only one who finds these very thinly traded predictive markets suspect.  Wired Magazine, and a few other investment advisors (Barry Riholtz quoted in the article) have noted the same problem.   

Markets are not magic.  They are only as good as the number of participants and volume of consistent trades taking place.  

What does get my attention are big moves in the absence of driving news.  It is then that I suspect there is an insider taking a slice before the issue gets out.  But even then I have often seen quite a few false positives.