How much of a game-changer is the report that the FBI is looking into emails linked to an aide to Hillary Clinton, less than two weeks before the election? It’s a shocker, based on news reports as well as a sharp drop in Clinton’s stock on the Iowa Electronic Markets.
The IEM is one of the few places in the U.S. where traders can legally put down real money on the chances that a candidate will be elected president. It’s been weighing presidential campaigns – and doing at least as well as traditional polls – since 1988.
The market was set up by the University of Iowa’s Tippie College of Business as an educational project to study whether market-based mechanisms could anticipate real-world outcomes in realms outside the business world.
Other political prediction markets, ranging from PredictWise to FiveThirtyEight to Bing, have followed in the IEM’s footsteps. Those markets, however, generally aren’t as quick to reflect sudden changes in how traders see the campaign shaping up.
Before today, the IEM’s traders were assessing Clinton’s chances of election at around 90 percent. After the FBI news broke, those chances plunged to around 68 percent. GOP candidate Donald Trump’s chances rose correspondingly, from 10 to around 32 percent.
That means a trader who was holding $90 worth of Clinton shares on the IEM saw their value drop to $68, while the same number of Trump shares went from $10 to $32 – more than 200 percent appreciation.
It remains to be seen whether the odds will shift one way or the other by Election Day on Nov. 8. Once the election results are known, trading cease and the IEM clears its accounts. In the hypothetical case we’re talking about here, the IEM trader who backs the winner would get $100. The losing trader would get zip.
So there’s a money-making opportunity here, as long as you make the right choice. The markets may be volatile, but there’s a lot at stake – not just for traders and gamblers, but for all of America’s voters.