I had forgotten about this but there was Intrade manipulationin 2008 which was confirmed by an internal report. Nate Silver had a long postabout it as well which he will no doubt reference in his promised column.
That pretty much settles it for me. I think the chances are high that someone is trying to manipulate Intrade again probably in the hope of pushing the story that Romney is gaining momentum.
Important thing to bear in mind is that neither Intrade’s internal report nor Nate Silver actually said what you post above, i.e. that someone was attempting to manipulate the market.
All they said is that the price swings were the results of one investor (or small group). It’s very common in thinly traded stocks for a big investor to temporarily influence the price, without any specific intention of doing so. It’s simply difficult to move a lot of the equity without influencing the price, and if you want to buy or sell a lot of it, then the price swings are something you have to accept.
The one making the claim that the investor was specifically attempting to influence the election was Paul Krugman, based on his speculation. FWIW.
I suspect the FEC regulations prohibit the use of campaign funds for gambling purposes, but otherwise I don’t see why it would be illegal.
It’s not just Krugman. Alex Tabarrokwho is pro- prediction market and pro-market in general interprets it as manipulation.
As does Freakonomics:
I agree, that looks like evidence of manipulation.
If it was manipulation what exactly were they trying to accomplish? They succeeded in moving a market for six minutes, gave away a bunch of free money, and looked like idiots.
As has been said, swings like this happen every day in financial markets around the world. Price is determined by the interaction of sellers and buyers, not some magical “fair value.” This morning in At&T stock someone hit the market with a block of ~3 million shares to sell at the market open. It drove AT&T stock down 3% for a short amount of time. Does that mean anything changed at the actual company? No, just that some moron sent an order at a time of day when there weren’t enough people ready to take the other side of the trade - aka liquidity. Within a couple minutes, the price had rebounded. This kind of stuff happens all the time.
Given that Intrade is a much more illiquid market than AT&T stock and there are plenty of idiots with $18,000, I’d say this is a situation where one shouldn’t attribute to malice that which is adequately explained by stupidity.
But if they’re all happening at the least liquid times of the day, that suggests something more.
If you were going to drop a ton of money on one side, is it mathematically possible that you could benefit by betting a small (but still significant) amount on the other side first in order to drive down the price on the side you were really better?
ETA: In other words, I plan to buy $100k of McCain. If I first buy $10k of Obama, can I alter the market enough to realize a $10k+ better return on my McCain investment?
It doesn’t seem possible, because by later betting even more on the other side you would drive the price back up even more.
The only way this works - and this is how it’s done in penny stock schemes - is if your purchases (accompanied by some marketing) set off more buying by others. But if they just revert back, it’s a money losing proposition.
But at Intrade you’re not buying anything; you’re making a bet. AIUI, the Intrade “prediction” is essentially the betting line.
It would be interesting to see some type of transaction cost analysis on the InTrade markets throughout the day. What is the average order size? When is trading the most active? How much would an $18k dollar order move the market when it’s most liquid vs. most thinly traded? With that kind of information maybe some conclusions could be drawn about whether it’s intentional or accidental.
But even assuming intentional manipulation, all it suggests to me is somebody out there is an idiot with money to burn. Seriously, whose vote is going to be swayed by an internet betting site that gets out of whack in the morning for 6 minutes?
I don’t understand the significance (and possibly the meaning) of what you’ve written. Whatever it is you’re doing (actually buying a contract which pays under specified circumstances) it has the same supply-and-demand issues as a stock or bond, for purposes of this particular issue. That being that the same dynamic which drove the price one way will drive it back even further the other way when you do the opposite.
Well yeah, it obviously didn’t work, did it? 
It may be working for the purposes of the people who want to sway the market. Say one of these Republicans was in contact with a Fox News type. He decides to make an 8 am purchase to boost Romney’s odds. He calls the reporter and says, 'Hey, pull up Intrade between 8 and 8:30 this morning, and you’ll see some interesting stats. Might be worth making a screen cap of it." So the reporter does as ordered/requested, sees that Romney has surged ahead on Intrade and duly writes up a story about it, which gets picked up by other conservative media. It’s a pretty cheap bit of publicity in those circumstances.
Exactly. This is why I don’t understand the manipulation angle. Anyone who has $20K or whatever burn probably understands how markets or betting work (maybe I’m wrong about that) and should know that the price will fall back down to what the market or betting pool considers a “fair price.” I personally think the most likely scenario is simply a guy who likes to gamble, has money to spare, and either thinks Romney is undervalued or simply is betting with his gut like he would bet on red or black at the roulette table. That’s all. That makes a heck of a lot more sense than trying to ascribe purposeful manipulation. As I said above–to what end? The market quickly corrects itself, as happened in this case.
Did you read the whole thread? There’s other evidence that points to manipulation.
I did. And my question stands: to what end? Perceived momentum?
Right, but if you are placing a single bet on the opposite side, it won’t be driven back until *after *you’ve placed the bet.
Yes. Being able to say Romney is up by six points or is leading on Intrade has PR value. Of course, other media channels can point out that it was a temporary thing, but still … you got to plant that meme in viewers’ heads. Makes no difference that others can deny it.
That’s incorrect. You seem to be assuming that there is a “house” with unlimited funds to take your bet at current odds. But that’s not how it works.
At any given point there are any number of outstanding buy and sell orders, at various prices. Just because you’ve driven the price down to 47 from 51 with your big sell (for example) doesn’t mean that a bunch of new sell orders are going to appear at prices below 51. Your next buy is going to have to deal with what’s available, and if you want - for example - 10,000 shares, then you will pay for the lowest-priced sell order, and then the second-lowest and then the third-lowest and so on, until you get your 10,000.
Yes, that’s exactly what I was assuming. Oops. Ignorance fought.