Was Intrade telling us this all weekend?
29 September 2008
For those not familiar, Intrade is a prediction market based in Ireland that allows you to bet on any number of events with binary outcomes. For example, “will Obama win the US election?” (currently at 61.1%, up 4.1% today) or “will Sarah Palin be withdrawn as McCain’s running mate?” (currently at 9.5%, up 1.3% today).
Prediction market is a more genteel term than bookie. And has less SEC oversight than the NYSE.
Here’s how it works. The payoff is either 100 or zero. So if you believe Obama will win then you can buy the bet at 61.1 and get 100.0 if he does. Or zero if not. The idea is that when people put real money on the line the market will give a more accurate prediction than polling.
Did Intrade predict today’s market drop?
OK now let’s take a look at today’s bailout vote. You could take a bet on Intrade for or against
“US Congress to approve a government bailout of banks on/before 30 Sep 2008″
The bet ended up today at a 2% chance of the deal getting passed by the end of tomorrow. Now look at the graph of Intrade and at the S&P500 (circled on graph) – they are trading in sync this afternoon when CNBC was showing the clip of the vote count.
But. If you wind the clock back a bit you’ll see that Friday’s odds closed at 89%. On Sunday the odds were down to 60% and this morning saw the odds around 25%. Then we see a steep drop to about 10% at around 9:00 this morning (also circled on graph) – much stronger than the opening drop on the S&P500.
So, did someone know something and did Intrade give us an early warning?
CWN.
2 Responses to “Was Intrade telling us this all weekend?”
September 29th, 2008 at 9:12 pm
Craig
Great work. It is staggering to think that this site knew at 9am that the chances of the “bailout” vote passing had dropped to just 10%. In the first 30 minutes of trading, the Dow was down about 225 points and sat there until just after 1:40pm. Once the vote news was out, it fell another 300 points.
Folks who paid attention to this site and the Congressional mood change it foretold, despite what we were hearing on TV from House Leaders, saved themselves plenty of money.
MRM
September 30th, 2008 at 3:54 am
Prediction markets are exceptional at opinion aggregation. They are also more immune to editorial bias as their forecasts are made up of many 100s and 1,000s of traders predictions.
We run a prediction market called Hubdub (http://www.hubdub.com). We are currently forecasting there to be a 71% chance that a bill passes by the end of October: http://www.hubdub.com/m17770/Will_the_US_Congress_pass_a_bailout_package_by_the_end_of_October