Following the election in the prediction markets

One of the most interesting aspects of this election has been the advent of prediction markets such as Intrade and the Iowa Electronic Market as a means of measuring the current trends and positions of the candidates. These markets have been accurate in predicting a lot of events.It’s worth noting that prices in these markets represent the market’s estimate of the probability of a particular outcome. So if the market is giving, say, a 55% chance of Obama winning a particular election, and then Clinton wins, it’s difficult to say that the market was “wrong.” Evaluating the accuracy of these markets is a subtle endevor, but not impossible.

The most interesting thing about these markets, though, is the tools that they give for tracking trends using the kinds of technical indicators usually applied for tracking prices in financial and securities markets. Take this chart of the last month’s closing prices for Obama winning the Democratic nomination, including indicators such as the MACD and momentum, plus moving averages.Intrade Obama Nomination Price 2/15/2008

The indicators seem to show that Obama’s upward trend started perhaps up to a week before Super Tuesday (Feb 5). They also indicate that his momentum has begun to weaken somewhat in the last few days, though it’s still positive. (The Clinto chart shows essentially the same pattern, but inverted.)

It will be interesting to see how these charts play out through the next few weeks as Wisconsin votes and then leading up to Texas and Ohio.

[Note: The Wikipedia page for MACD indicates that it has become a less effective predictor in recent years, but it’s not clear whether that applies in prediction markets, if we assume that the majority of Intrade traders rely on fundamental analysis rather than technical analysis.]


2 Responses to “Following the election in the prediction markets”

  1. Following the election in the prediction markets Says:

    […] Library Revolution wrote an interesting post today onHere’s a quick excerpt […]

  2. Buy Obama! « The Q Function Says:

    […] market for the overall outcome of the race, it’s worth noting the technical indicators (as I did in the primary).  Obama’s MACD is strongly positive, indicating upward momentum. Intrade chart for Obama […]

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