Magazine article Modern Trader

Iowa Political Stock Market

Magazine article Modern Trader

Iowa Political Stock Market

Article excerpt

Political pundits everywhere can finally put their money where their mouths are with the Iowa Political Stock Market (IPSM), a 24-hour computerized market where traders investing between $5 and $500 can go long Bush, Clinton or even Perot.

The IPSM actually has three markets: an election market, a plurality market and a derivatives market -- yes, traders can enter something like an options bull spread if they think they know their candidate's share of November's popular vote. It was dreamt up by four faculty members at the University of Iowa back in 1988.

"We saw how badly polls were doing and thought about how we could do better," says Robert Forsythe, an Iowa economics professor. "To a bunch of economists, the natural thought is, 'Can we set this up as a market?'"

That initial presidential market attracted 193 traders and $4,982, mostly from academic circles. This year's market has drawn over $60,000 and 800 investors from about 80 universities worldwide.

Because the IPSM is non-profit -- accounts are settled after the election and the university charges no fees for transactions -- it is recognized by the Commodity Futures Trading Commission (CFTC) as an experimental market. But just how good an experiment is it?

"In 1988, even we were astonished at how accurate the market outcome was. We were within two-tenths of 1% of Bush's final margin of victory," Forsythe says. "Right after Bernard Shaw's now famous question to Michael Dukakis (would he favor the death penalty had his wife been raped and murdered? …

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