Are we witnessing manipulation attempts on the Florida prediction market at InTrade?

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Florida went blue around 8:51 PM, on September 26, 2008&#8230- for a brief period of time:

The Democratic side:

Tip via Lance Fortnow

Previously:Is InTrade being manipulated?

UPDATE: See Jason Ruspini&#8217-s expert analysis in the comment area.

As Justin Wolfers noted, maybe there are today bigger practical obstacles to prediction market arbitrage.

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Legal restrictions for US traders on foreign prediction exchanges (BetFair, etc.)-

Transaction fees (you would need to operate on 2 exchanges)-

Currency risks and cost for hedging on that.

Eric Crampton (a Canadian exiled in New Zealand) says he has managed to turn a buck, though, by arbitraging between InTrade and iPredict New Zealand. He also makes 2 theoretical points. Go read it.

Is InTrade being manipulated? Why does InTrade give a discounted probability for Barack Obama as US president?

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A quick link panorama.

#1. Is InTrade being manipulated?

– Nate Silver shows that there are abrupt downward pressures on the Barack Obama event derivative, while we also see some abrupt upward pressures on the Hillary Clinton event derivative.

However, you can see by yourself that InTrade is resilient enough and does a great job of going back to normal [*], after just a few hours of trading:

– At Portfolio, blogger Zubin Jelveh blows the incidents out of proportion.

– Professor Lance Fortnow has a more careful analysis and notes that the price of the Barack Obama bounces back quickly enough.

– Quick thought: Maybe the media should use an average of event derivate prices for the last 5 work days&#8230- so that the abrupt perturbations would be eliminated.


Professor Eric Zitzewitz:

I’m not sure you can conclude from Silver’s graphs that the market goes “back to normal.” You can conclude that it moves back in the opposite direction of the impact those large trades. Back when the Hillary for President market looked like it was being manipulated, it appeared that the manipulator was both placing a large purchase and then placing limit orders to provide price support and slow down the reversion of the price.

UPDATE: Are we witnessing manipulation attempts on the &#8220-Florida to vote Republican&#8221- prediction market at InTrade?

#2. Why does InTrade give a discounted probability for Barack Obama as US president?

– As you remember, Emile Servan-Schreiber of NewsFutures believes that it&#8217-s a Republican conspiracy all over.

– Professor Justin Wolfers puts up an hypothesis: it&#8217-s legally impossible for US traders to arbitrage on BetFair.

– InTrade put up a crappy excuse: the industry is still too &#8220-young&#8221-. How lame. How stupid. The industry was younger in the previous elections, where arbitrage opportunities didn&#8217-t exist according to professors Justin Wolfers and Eric Zitzewitz (see their 2004 paper and their other publications).

– Blogger Zubin Jelveh swallows the InTrade P.R. line, and adds another crappy InTrade P.R. line: More arbitrage opportunities are being exposed in open air because much more observers are hunting down arbitrage opportunities in 2008 than in previous elections. That&#8217-s a second blatant cretinery, uncorrected by the Portfolio blogger. Re-read Justin Wolfers&#8217- blog post. Professor Justin Wolfers states that:

The current variation in price is larger than I have ever seen in my years of studying prediction markets. The forces of arbitrage that would typically eliminate these differences have been handicapped by the legal restrictions preventing U.S.-based traders from using overseas markets.

– Finally, professor Lance Fortnow says nothing about the arbitrage opportunities between InTrade and BetFair, but does offer some technical points about the issue of polls versus the prediction markets, centered around the question of state correlations. Read on.

UPDATE: Eric Crampton (a Canadian exiled in New Zealand) says he has managed to turn a buck by arbitraging between InTrade and iPredict New Zealand. He also makes 2 theoretical points. Go read it.

UPDATE: Greg Mankiw just linked to Nate Silver.

The Giuliani manipulator buyer is back

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Judging from his hours, he&#8217-s based in the US.

We see you on the bid again, and your cosmetic offers as well. You are the whale in this market, but it&#8217-s a small pond. Be careful.

More details on this strange trading later&#8230-


Exhibit A: a view of trading known as &#8220-market profile&#8221- from March 1st through the 7th. Price is on the y-axis and volume is on the x-axis, instead of time. What typically develops on these charts are sideways normal-distribution-like patterns, which is unsurprising by the central limit theorem. Often, a jump to a new mean corresponds to an event. The pattern below is unheard of in liquid markets, except in risk-arb and other &#8220-peg&#8221–ish situations.

Giuliani Volume@Price 3/1/07-3/7/07

What first comes to mind is that the exchange is manufacturing volume with bogus &#8220-wash&#8221- trades, but the first time 33.3 printed (which is where half of the volume for March occurred as of yesterday), the price had been in the teens, and 33.3 marked an all-time high for the contract. This doesn&#8217-t make sense as fake volume nor some sort of internal initialization trade relating to TEN&#8217-s restructuring.

Yesterday&#8217-s trading suggests that a single buyer is pushing the market up and is currently successfully holding it at 40 while posting offers to appear as a passive market-maker. 1-2000 buy orders remained near 40 until about 10pm EST yesterday and returned this morning, EST. In these thin markets, this is quite a lot especially considering the high price level &#8212- and it is high since it&#8217-s almost a year before the first primary. Of course the recent buyer might be unrelated to whoever caused the anomaly at 33.3. To be continued..


After taking the weekend off, our buyer was back by 10am EDT this morning. He has to defend 33.3 which shouldn&#8217-t be too difficult considering that there are only 3 major candidates. Truth be told, 40 isn&#8217-t that high for this contract, and the price does more-or-less reflect recent polls, but this guy is awfully confident. There is a fine line between a manipulator and an overconfident trader who is too large for the market.