US Election & Prediction Markets
How the heck is everyone?!!?
As the other members know, politics and financial economics are a couple of my favorite topics; so the US presidential elections are always a fun time for me. There are way too many polls, state polls, and aggregate "poll of polls" to figure out who's going to win (and how to make money off this prediction), so I rely on efficient markets and the self serving greed of human nature to get the most accurate info; namely Intrade Prediction Markets!
Although most national polls are suggesting a dead heat or even slight Romney lead, the US electoral college is a winner take all system in each state so it turns out Obama has a better breakdown of votes in the key "battleground states". So according to link above, the efficient prediction markets today are predicting a 63% likelihood of Obama winning. Just to be clear, the prediction is just that he will get to 270+ electoral college votes, and not take 63% of the popular vote.
Interesting thing is, when you look at the battle ground states (at this link), there's only four states which are "in play". Let's arbitrarily say anything above 65% is a given to the leading candidate. (electoral college votes in parenthesis).
Ohio (18 votes) is leaning 62% to Obama
New Hampshire (4 votes) is leaning 58% to Obama
Virginia (13 votes) is leaning 57% to Romney
Colorado (9 votes) is leaning 51% to Romney
Without the above states, Obama is at 259 EC votes and Romney is at 235 votes. Romney needs Ohio, VA and one of NH or CO. Obama can conceivably win without Ohio by taking NH and CO to get to 272 EC votes. That would be a really exciting election night if Obama loses Ohio, wins NH, with the CO election results coming in late at Mountain time. Obama wants to avoid that nail-biter scenario, so they really want Ohio and the 18 votes. In fact, I read the ground game is so intense in Ohio, it's come down to two counties and several suburbs in those counties to try to get out those votes.
As it currently stands, if we play the odds, as we always do in the markets, it looks like a Obama win and we stick with the status quo. If somehow, over the next week Romney manages to make gains in Ohio, looks for the markets to adjust accordingly. I'm thinking certain sectors like Healthcare, Defence, Energy and maybe even Financials might uptick based on the perception of a less regulatory environment.
OK, baby is crying so that's my thoughts for now.
posted by Junk Bonds @ 10/27/2012 03:40:00 PM
2 Comments:
Cutest blog post ever!
Even lack of sleep doesn't stop you from thinking about politics and markets heh!
Question about Intrade. Can only US citizens play the Intrade election markets or can any non-US (voter) with deep pockets and with other motives make bets? I suppose if the market breadth is deep enough then their results are highly accurate. Show me the money almost always works!
So if Intrade is predicting an Obama electoral college win, it doesn't say how close the popular vote will be. I suspect that it will be a very close popular vote which will embolden the losing side to not make many compromises. I'm thinking of the negotiations that will inevitably take place regarding the "fiscal cliff" and the breach of the debt ceiling that is suppose to happen sometime after the election.
If the last fiscal cliff negotiations were any indication, this upcoming one will show the paralysis of partisan politics. It's cliche but the "markets don't like uncertainty". It would be a better result if the winner of the Presidency won handily!
So I say that even if Intrade makes the correct call of a close election, the markets will not respond favourably to the next political hurdle.
Not sure how to play this as Europe and China have their own issues. I've noticed that the Canadian $ has held up well despite commodity weakness. Even the TSX has held up during the commodity weakness so I'm thinking of staying close to home.
Lots of questions, I'll try to address the ones I know.
1) It seems anyone including non-US can sign up on Intrade. I have not signed up but there is an option to choose any country.
2) The trade volume is averaging 30K shares per day so it is conceivable that someone can manipulate that market, but seems unlikely.
3) W. Bush lost the popular vote to Gore in 2000, in the infamous hanging chads fiasco of Florida recounts and court appeals.
4) There is an Intrade market for popular vote % if you click around, but not much volume. Although, not sure how this is going to affect the "fiscal cliff".
To me the interesting question today is how is this hurricane Sandy going to affect the election outcome? A lot of talking heads are saying how Obama handles this emergency response might swing the indy votes in some battleground states. I think at this point (before the storm hits), it's a net negative for Obama as disgruntled people will be more likely to turf the incumbent, and look for some alternative.
Never a dull moment!
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