Sunday, November 2, 2008

Prices in Senate and Presidential Markets

Intrade provides markets in several states where there will be elections for both President and for Senate. Polling data are available for both sets of contests, and analysis reveals a few anomalies where candidates with similar poll performance have significantly different Intrade prices.

Either Intraders have information that is not in the polls or there are profit opportunities available (disclosure: I do not hold a position in any of these markets).

Above is a table (made Sunday afternoon, November 2) of the last 13 states whose Senate races Real Clear Politics (RCP) put on their “Battle for the Senate” tab that have recent polling data page (Louisiana and Nebraska had insufficient polling data to generate an RCP average and were excluded). Aside from Alaska (obviously a special case since the Republican candidate for Senator was convicted and the prior polling data may have factored in a possibility that Sen. Stevens would be not guilty), there is a rough correspondence between the margin in the polls and the Intrade prices. But a few interesting points emerge that I offer for the purpose of debate, knowing of many possible problems (such as the lack of liquidity in certain contracts) that might also explain these findings.

Comparisons among Senate Prices

Even though the Republican candidate Norm Coleman leads in the RCP average, Intraders believe that Al Franken is roughly an even chance. But the race is clearly very close and the polling data are fairly skimpy, with the most recent poll, from the Star-Tribune, has Franken significantly ahead. The interesting observation for Intraders might be the comparison with Georgia, where Saxby Chambliss has a lead comparable to Coleman’s but trades at a significantly higher price.

The other interesting Senate observation is in the spread between the prices of the Democrats who are 5 point RCP favorites compared with the prices of a Republican with a similar edge. Challengers Kay Hagan in North Carolina and Jeff Merkley in Oregon both have leads roughly comparable to incumbent Republican Mitch McConnell in Kentucky. Yet both Democratic contracts trade a bit higher than the Republican contract.

Finally, Intraders believe that the polls for Roger Wicker in Mississippi seem to overstate his chances. Jeanne Shaheen in New Hampshire has a slightly smaller edge in the polls (against an incumbent) and trades five cents higher.

Comparisons among Presidential Prices

The states that stand out are North Carolina, Colorado and Virginia; in North Carolina the polling is virtually even (the last four polls were Obama +2, tied, Obama +2 and McCain +3), yet the Obama contract trades over 60 cents while in Colorado and Virginia Obama’s 5 point lead corresponds to prices in the mid 80s. In New Hampshire, Obama has a larger lead and a lower price. To put these prices into context, candidates with 5 point leads in the Senate (in Kentucky, North Carolina and Oregon) all sell below the Virginia Presidential contract.

Senate-Presidential Price Comparisons

Anomalies: In Colorado and New Mexico, Obama runs well behind Mark and Tom Udall in the polls, yet trades at a slightly higher price. In Mississippi, McCain and Wicker have similar polling results and presumably most voters for McCain will vote for Wicker. Yet McCain’s price remains significantly higher than Wicker’s.