Flash: Republicans Caught Driving Up Political Speculation Markets for McCain

[phrigndumass]

Republicans have been caught driving up McCain's speculation chances of winning and driving down Obama's speculation chances of winning on Intrade and Rasmussen Markets.

Between the close of the republican convention and up until late last week, a significant discrepancy was witnessed between share prices for McCain and Obama on Intrade and the same prices on other political speculation market sites such as BetFair and Iowa Electronic Markets. McCain's shares were trading at roughly 10 points higher and Obama's shares 10 points lower on Intrade (and Rasmussen Markets) than they were on all other sites. This can be seen in the green box in the illustration below, which tracks the daily closing prices for Barack Obama on Intrade, Rasmussen Markets and now Iowa Electronic Markets (red line). The green shaded area shows the discrepancy over the last six weeks.





This was first noticed by Nate Silver of FiveThirtyEight.com on September 24:

Source: FiveThirtyEight.com

Intrade Betting is Suspicious

There's something funny going on over at Intrade with respect to the pricing of the Obama and McCain contracts.

...

That is a huge spread, 51.5 points versus 61.7 points. This is the equivalent of the Giants being 3-point favorites at the Bellagio Sportsbook, and 7-point favorites at the Mirage down the block. Those things just don't happen in efficient, sufficiently liquid markets, because they create arbitrage opportunities: you'd lay $10,000 on the Giants at the Bellagio and $10,000 on their opponents at the Mirage. Any time the Giants win by fewer than 3 points or more than 7 points, you lose nothing, since your two bets cancel out. But any time they win by fewer than 7 points but more than 3, you win both bets, and take home $20,000 (less the casino's vigorish) for absolutely no risk. Pretty good deal, right? That's exactly what's happening with these futures contracts.

...

In fact, the Intrade pricing doesn't even seem to be internally consistent. If you look at their pricing in individual states, they have Obama at no lower than 60 percent or so in each of the Kerry states, as well as in Iowa, Colorado and New Mexico. And Virginia, Nevada and Ohio are all at about 50:50. The relationships between the odds of winning any given state and the odds of winning the electoral college are difficult to determine, but I'm pretty sure that Obama should be higher than 51.5 percent given those parameters.

...

It's pretty obvious that this is not some sort of random walk. Rather, every so often, some individual trader or some small group of traders are shorting all the Obama contacts in bulk and resetting the entire market. The markets then organically climb back upward until the rogue trader strikes again six or eight hours later. The volumes on these contracts have been very high for the past week as a result.

Most likely, this is just some idiot degenerate gambler who is trying to have some fun. Between the Obama and McCain contracts, there appears to be about $400,000 in contracts changing hands every day, which is a lot by Main Street standards, but minuscule by either Vegas or Wall Street Standards.

Read more: http://www.fivethirtyeight.com/2008/09/intrade-betting-...

And then Intrade posted a comment Friday about the political markets manipulation in an attempt to be fair and transparent:

Source: John Delaney, CEO, Intrade

Intrade Comment on Alleged Manipulation in the Presidential Markets

There has recently been vigorous discussion of unusual trading activity on our political prediction markets. What could be motivating the activity has been subject to widespread speculation by academics, journalists, our own users and others. Some external commentators have claimed the unusual trading patterns indicate that our markets are being intentionally manipulated for political purposes. Others have gone further yet.

...

The trading that caused the unusual price movements and discrepancies was principally due to a single "institutional" member on Intrade. We have been in contact with the firm on a number of occasions. I have spoken to those involved personally.

...

Further, it is apparent that the cost of time in accumulating the desired positions by those "institutional" members responsible for moving the McCain market up and the Obama market down differs fundamentally to loyal "retail" members that Intrade relies on.

Read more: http://www.intrade.com/jsp/intrade/misc/blog/?initialBl...

John Delaney's notice left us all scratching our heads as to who this "institutional member" could be ... someone who could afford up to $400,000 a day in share purchases to manipulate the markets. Then Noam Cohen of the New York Times publishes the article below yesterday (October 19):

Source: New York Times

Trading Variance in Election Predictions Raises Questions

In the last few weeks, Intrade.com, which is based in Dublin, had consistently given John McCain as much as a 10 percentage point edge in his chances to be elected president compared with other large online overseas betting sites. These include the British-based Betfair.com, as well as the Iowa Electronic Markets, a research project at the University of Iowa that allows bets of $500 on election results.

If this were merely an academic exercise in market behavior, few people besides economists would care. But in this information-saturated election, the candidates’ numbers on Intrade have become another important way to analyze the state of the race. Since 2006, the influential site realclearpolitics.com has included real-time updates of the latest Intrade prices next to the polling results it gathers.

On Thursday, the chief executive of Intrade, John Delaney, responded to allegations that there had been market manipulation — in essence, that somehow Mr. McCain was being favored by artificial means.

...

“The surprising thing is not that there was some manipulation, it is that it was sustained,” said Forrest Nelson, who teaches at the University of Iowa and has followed Intrade as well. ... David Rothschild, a Ph.D. candidate in business and public policy at the Wharton School at the University of Pennsylvania, has tracked these markets. He said of the institutional trader on Intrade: “If their job was to hedge bets, they were not doing a very good job at gaining these positions at a minimal cost. They are overpaying for these positions. I don’t know if they are doing it to manipulate the market, but they are not doing a very good job at minimizing their costs.”

The political explanation — that someone was trying to game the system to give Mr. McCain some momentum — has the advantage of at least appearing rational to economists. Increasing a candidate’s perceived standing would be something of value to offset the irrational decision to waste money buying a share in Mr. McCain for more than the absolute minimum price. For example, on Sept. 14, John King of CNN on “This Week in Politics,” said: “Let’s take a look at what the smart money is saying. This is the latest from Intrade.com. It’s the Irish bookmaking site where you could put your money where your mouth is. As you can see, Barack Obama’s big lead — look at that green line — has vanished and he’s now just slightly behind John McCain. You can see McCain, he’s the purple line shooting up just there. That’s the word from the bettors. They think McCain has ascended at the moment.”

Read more: http://www.nytimes.com/2008/10/20/business/20predict.ht...

The republicans weren't smart enough to buy at the lowest price possible. They purchased in volume, no matter what the price, and this is how they were caught! It took a hell of a lot of money to do this ... $18 million dollars over 45 days.

More on this story will be coming as it develops ...

[melody]

1. Psst, nobody point out how weird, pathetic and useless that is, okay?

We want them to keep doing it.

[phrigndumass]

3. lol ... If this is how they're spending their money, let 'em waste it :)

But when other people's money is involved (losses incurred on the same markets by other bettors) ... it's a crime. It's manipulation of the markets for a tangible result, sort of like the speculators did with oil prices.

[myrna minx]

2. How absolutely bizarre.

Kicking to read in depth when I return home.

[phrigndumass]

4. Isn't it?

It's also a crime.

Saying hi now in case I miss you later

[myrna minx]

10. I'm still trying to wrap my mind around this. That is a huge amount of money to

throw away in a criminal enterprise to give the illusion of a "close" race. Am I understanding this correctly? If so, wow. Paging Phil Graham. Can this be traced? Wouldn't it be delicious is it was the US Chamber of Commerce behind this? OR the RNC directly?

thanks for posting this. This election is getting weirder and weirder.

[TexasObserver]

5. Could be Cindy McCain's money behind it.

[phrigndumass]

6. It's an "institution" not an individual :)

Maybe it's her beer company, lol

Nah, most likely it's the NRA or a republican 527 group, or even the RNC themselves. Someone with a huge bankroll and the know-how.

[TexasObserver]

13. Those behind it would likely work through an institution as a shield.

I would suspect there are at least two layers between the true money source and the institution doing the buying.

[grantcart]

7. Well I can guarantee you its not $ 18 million

What I don't understand about this is why would they throw their money away on this rather just donating the money to the RNC.



It just doesn't make any sense.

[phrigndumass]

8. It was meant to drive the storyline that it's still a horserace

Plus, innocent bettors most likely lost money in the midst of the manipulation.

$400,000 each day for six weeks

[gademocrat7]

9. criminal and disgusting

I am not surprised at anything these thieves do.

[fight4my3sons]

11. .

[myrna minx]

12. May we have one more rec to get this to the greatest?

[HCE SuiGeneris]

14. Liars, cheats, and heathens all.

Same crap has been playing out in the futures market with artificial price spikes in oil and grains. F'n free market my ass... not when you have so much money you can swing the market in any direction you choose.

[Celebration]

15. Sounds like this would be a good bet to take on the other side n/t

[central scrutinizer]

16. Intrade has a certain cachet

the bettors were pretty accurate in the last couple of elections so why not try putting the cart before the horse to see if you can dupe a few people,