Monday, November 01, 2004

Markets and Elections

The election is tomorrow, the stock market has been gaining for a week, Bush leads in the Iowa Electronic Market. People who put their money where their mouth is are usually the best source.

Writing in the Spring, 2004, Journal of Economic Perspectives, Paul W. Rhode and Koleman S. Strumpf investigate "Historical Presidential Betting Markets."

"Wagering on political outcomes has a long history in the U.S. ... the market did a remarkable job forecasting elections in an era before scientific polling."

To the extent possible, the authors examine historical markets and conclude that they met (almost) the formal conditions for efficient markets.

Yet, the rise of scientific polling by itself did not curtail presidential betting markets. In addition, there was the increasing availability of other betting options as well as anti-gambling sentiment and legislation that sought to disqualify election bettors from voting.

Yet, now that there are more equity owners among the general public than ever, the public may be more sophisticated about futures markets than through the 20th-century.

It is the learning that comes via wealth acquisition that really concentrates the mind.