McCain and Obama Presidential Futures Contracts

I talk about the Intrade Political Futures markets a lot in my classes. They're a good example of how markets process dispersed information. There's a lot of debate about whether they actually predict many kinds of events or merely (in the case of the Presidential elections) merely react to polls. But despite that, they're a fairly simple market that's useful for demonstrating a number of concepts about markets (expected values, bud-ask spreads, trading volume, etc...).

Also, I'm a political junkie, so it's fun to see students in a finance class actually think about politics in a different way.

In any event, it now seems like the McCain for President contract and the Obama contracts have switched places (they're trading at $0.495 and $0.50 respectively). I always find it interesting to see how they react to various news events.

As an aside, I usually get a bit of a traffic spike when I post something on McCain, Obama, or the presidential elections. Unfortunately, it also results in a lot of fevered comments that I have to delete to protect all my many readers' (all three of them) delicate sensibilities.

Of course, if I did it for the traffic, I'd just mention that I have Sarah Palin Bikini pictures.

But that would be wrong. Very, very wrong.

It's Time For Prediction Markets Again

As the elections come closer, people one again start talking more about political prediction markets. In fact, they're well known enough that the the Wall Street Journal will now be featuring regular commentary on what the prediciton markets say about the various political candidates.

The pieces will be written by Wharton's Justin Wolfers. He's one of the sharpest young economists on the scene, and extremely well versed on the topic.

Click here to read his first piece.

Prediction Markets and The Nobel Prize in Economics

The lists of likely Nobel Economics Prize winners have started. I chose Eugene Fama for last year's prize based on his early work supporting market efficiency and his more recent work examining weaknesses in the tradional Capital Asset Pricing Model (CAPM). You've just gotta love an academic with the stones to turn his back on his career-making earlier work when he finds new evidence that contradicts it.

But last year, I came up with bupkes/nada/diddly. So this time I'll stick with the same hand.

In case you're interested, InTrade has opened trading in the Nobel Prize contracts. Fama's currently leading the pack in the econ trading, but it's still early.

HT: Greg Mankiw

Update: When I wrote the original post, I probably should have chosen my a better phrase than "debunking" when referring to Fama's recent work . I was referring to his work with Kenneth French on Size and Book-to-Market as proxies for factors with more explanatory power than the traditional CAPM "beta" in explaining returns. So a more correct way of describing Fama's later work would be "debunking the traditional CAPM model".

One way to interpret his work with French is that there are risk factors (size, book to market) other than the CAPM systematic risk beta that are priced in the market. So he's not exactly taking shots at the efficient markets hy[pothesis rather than at the risk-return model that was most often used to test it.