Panic at the Iowa Electronic Market?

The Iowa Electronic Market is an online securities exchange where traders buy and sell contracts whose monetary value depends on political events. Most contracts pay $1 if the event happens (Bush re-elected) or pay by vote share (e.g., “Vote share Bush 2000” would pay $.49).

Early this week, the contract “California recall cancelled” was selling for about $.05 – very confident the recall would go through. Then the panel of the 9th circuit postponed and the market jumped to about $1.10. Today, “recall cancelled” is trading at about $.03!! Could this be an example of a stampede at the Iowa Market? Is a single trader driving this market? If you are a trader, drop me an email and tell me your thoughts on what happened this week.

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