The first presidential debate of the season is now in the books, and it appears to have led to significant changes in beliefs about the outcome of the November election, and even the outcome of the Democratic National Convention in August.
IEM has a popular vote market where the price of the Dem contract was at 73 before the debate. Both models had Biden winning the popular vote but with much lower probability. So the virtual trader in each case would have sold short. After the debate the IEM price fell to about 64. The traders would have covered their short positions for a profit. The FiveThirtyEight model would have made a return of almost 70 percent in under a week based on a budget of $500 and log utility. We are actually tracking these portfolios for a follow-up paper.
How could both models have made money in the Iowa market?
Hi Richard.
IEM has a popular vote market where the price of the Dem contract was at 73 before the debate. Both models had Biden winning the popular vote but with much lower probability. So the virtual trader in each case would have sold short. After the debate the IEM price fell to about 64. The traders would have covered their short positions for a profit. The FiveThirtyEight model would have made a return of almost 70 percent in under a week based on a budget of $500 and log utility. We are actually tracking these portfolios for a follow-up paper.
OK, that helps. Thank you!