Friday, October 26, 2012

Too Much Volatility on Intrade

As we get closer to election day, funny things are happening with the Intrade prediction market. The final debate was on Monday, Oct. 22. Two days later, President Obama's probability of reelection fell from just under 61% to approximately 55% in a single day, followed by a one-day rebound to just under 60%. As of today, he is at 62%, which is higher than he was two days before the final debate. The day-to-day volatility strongly suggests that a small number of players have been trying to move the market for political purposes, which is a risk with these kinds of thin markets. It's difficult to say whether we have seen an appropriate correction of the market (as comparisons with thicker prediction markets, such as Betfair, would indicate) or whether we're just seeing another round in an ongoing contest of tit-for-tat, bloc purchasing of shares  by Democratic and Republican operatives. Whatever the cause, if Intrade keeps showing such volatility in the coming days, it is probably best to ignore it as an indicator of momentum.

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