Trader Drove Up Price of McCain ‘Stock’ in Online Market
source: http://www.cqpolitics.com/wmspage.cfm?docID=news-000002976265
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By Josh Rogin, CQ Staff - An internal investigation by the popular online market Intrade has revealed that a single investor’s purchases prompted “unusual” price swings that significantly boosted the prediction that Sen. John McCain will become president.
Over the past several weeks, the investor has pushed hundreds of thousands of dollars into one of Intrade’s predictive markets for the presidential election, the company said, resulting in repeated monetary losses through a strategy that belies any financial motive.
“The trading that caused the unusual price movements and discrepancies was principally due to a single ‘institutional’ member on Intrade,” said the company’s chief executive, John Delaney, in a statement released Thursday. “We have been in contact with the firm on a number of occasions. I have spoken to those involved personally.”
After an extensive investigation into the suspicious trading patterns, Intrade found no wrongdoing or violation of its exchange rules, the company said.
Citing privacy policies, Delaney would not elaborate on who the investor was or whether or not that investor was affiliated in any way with a political campaign.
According to Delaney, this investor, who boosted the McCain prediction significantly over the market value and above the levels of competing predictive-market Web sites, was using the Intrade market to protect other positions and hedge other investments.
Pundits and politicians have used Intrade to track the fortunes of the two presidential candidates. Through the site, begun in 1999 and incorporated in Ireland, traders buy and sell “contracts” that function as stocks, allowing investors to gamble on the outcomes of political, cultural, or even geological events such as the weather.
The company claims and experts confirm that the Intrade market is generally more accurate in predicting outcomes of major events than other leading indicators, such as polls.
But the relatively small scale of the market and its lack of outside regulation leave the system vulnerable to activity from well-monied investors who either have inside information or seek to manipulate the market for political purposes.
Justin Wolfers, an associate professor at the University of Pennsylvania’s Wharton School of Business, said the trades in Intrade’s McCain-Obama market do not follow any logical investment strategy.
“Who knows who’s doing it, it’s obviously someone who wants good news for McCain,” said Wolfers, who has been following the situation closely.
Ripple Effects
Intrade users first noticed something amiss when a series of large purchases running counter to market predictions sparked volatility in the prices of John McCain and Barack Obama contracts.
Over the past several weeks, the investor has pushed hundreds of thousands of dollars into one of Intrade’s predictive markets for the presidential election, the company said, resulting in repeated monetary losses through a strategy that belies any financial motive.
“The trading that caused the unusual price movements and discrepancies was principally due to a single ‘institutional’ member on Intrade,” said the company’s chief executive, John Delaney, in a statement released Thursday. “We have been in contact with the firm on a number of occasions. I have spoken to those involved personally.”
After an extensive investigation into the suspicious trading patterns, Intrade found no wrongdoing or violation of its exchange rules, the company said.
Citing privacy policies, Delaney would not elaborate on who the investor was or whether or not that investor was affiliated in any way with a political campaign.
According to Delaney, this investor, who boosted the McCain prediction significantly over the market value and above the levels of competing predictive-market Web sites, was using the Intrade market to protect other positions and hedge other investments.
Pundits and politicians have used Intrade to track the fortunes of the two presidential candidates. Through the site, begun in 1999 and incorporated in Ireland, traders buy and sell “contracts” that function as stocks, allowing investors to gamble on the outcomes of political, cultural, or even geological events such as the weather.
The company claims and experts confirm that the Intrade market is generally more accurate in predicting outcomes of major events than other leading indicators, such as polls.
But the relatively small scale of the market and its lack of outside regulation leave the system vulnerable to activity from well-monied investors who either have inside information or seek to manipulate the market for political purposes.
Justin Wolfers, an associate professor at the University of Pennsylvania’s Wharton School of Business, said the trades in Intrade’s McCain-Obama market do not follow any logical investment strategy.
“Who knows who’s doing it, it’s obviously someone who wants good news for McCain,” said Wolfers, who has been following the situation closely.
Ripple Effects
Intrade users first noticed something amiss when a series of large purchases running counter to market predictions sparked volatility in the prices of John McCain and Barack Obama contracts.
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