Introduction to IEM
Iowa electronic markets were developed by the faculty at the University (Iowa) as a research tool and internet-based teaching. The Iowa electronic markets determine the group of real money prediction futures markets/prediction markets facilitated by Iowa Tippie College of Business(the university).
IEM is not similar to normal futures markets, but not-for-profit markets ran for research and educational purposes. The group allows traders to purchase and sell contracts based on economic and political indicators. While few markets are only available to academic traders. It is often used to predict political elections results, with more accuracy than traditional polls.
Therefore, Iowa electronic markets are known as experimental markets allowing wide participation. Its usefulness extends beyond the academic economist’s interests. University claims that the IEM outcomes for election come with a prediction error of only 1.37% points.
The group looks after two markets, the first being a political market where participants speculate the party that would gain control of the U.S House and U.S senate for a specific year. While the second market helps traders forecast upcoming decisions of the FOMC (Federal Open Market Committee).
People who use Iowa electronic markets
The group started in 1988, with over 100 universities around the globe enrolled ( probably large research-oriented institutions like MIT, Harvard, Northwestern and Michigan). The faculty uses Iowa Electronic markets in finance, microeconomics, macroeconomics, political science, and accounting courses. It aids to teach economics, technology and business parts in a creative environment. However, the application of Iowa electronic markets in actuality differ by discipline, there are 2 elements in common that Iowa electronic markets bring to increase student’s economic literacy to each class.
- Firstly, Iowa electronic markets are termed as a forecasting tool. Students or candidates can predict the outcome of future events such as an economic indicator, an election outcome or movie’s box office receipts in each class. To go through such research work, students need to learn about business and economic relationships that determine the outcome. For example, in political science, they must think about how business and economic factors can affect the electorate which in turn can affect each candidates election chances.
- Secondly, Iowa electronic markets are referred to as an incentive mechanism. Since the students earn real monetary rewards by trading, they are keener to learn which helps to make more profitable and better forecasts trades. Instructors have reported that the Iowa electronic markets lead students to actively follow elections, read about the business events and campaigns of the day and urge them to eagerly visit the class to engage their classmates and teachers in debates regarding current events and elections.
Rules and limits
Iowa electronic markets are neither regulated by any agency nor by U.S. Commodity Futures Trading Commission due to its small sums and academic focus involved. Moreover, the IEM receives 2 no-action letters extending to no-action relief.
It facilitates students to trade in a variety of contracts and invest real money ( ranging from $5.00 – $500.00). However, the best-known part of Iowa is political markets. Students can also trade with contracts whose eventual payoff depends on future events like the company’s quarterly earnings, movie’s box office receipts, economic indicators or a corporation’s stock price returns.
The 2022 U.S Congressional Control Market
The IEM futures market where payoffs determine by the outcomes of the 2022 Congressional elections. Currently, in this set there are 3 markets:
- House22: based on the composition of the U.S House of Representatives
- Senate22: based on the composition of the U.S Senate
- Congress22: composition of both houses of congress
The 2002 U.S Congressional
The market opened on 19th July 2002 closing on Nov 7, 2002, which was two days after the election day. Four contracts traded in the IEM market, depending on whether Republicans will gain control of the Senate, House, both or neither with the payoffs.
The prices of these assets depict the probabilities that the participants in the market placed. To which the contracts correspond to the various events. Moreover, computation of probability participants that aren’t directly represented by contracts placed on events.
For instance, finding the probability of Republican control of the House, independent whether they controlled the senate also. In the above-mentioned case, the prices of the contract would add RH RS and RH NS. In the same way, the probability of the Republican Senate is independent of the outcome of the House. Can be formulated as the sum of RH RS and NH RS.
federal reserve (Monetary Policy Market B)
The federal reserve monetary policy market B is operating since 3rd OCTOBER, 2001 ( succeeding the day of the FOMC meeting). In this market, the prices provide the probabilities. That the participants in the marketplace on the FOMC actions on federal funds rates at its upcoming meeting.
Conclusion (iowa electronic markets)
Therefore, Iowa electronic markets explain the research forecasting tool group developed in 1988. Which is favourably used to predict election polls. The creative mechanism is used by two markets, one political and others traders forecast. It is moreover used by students for the study of predicting future events. The company has three phases, one from 1988-1996, the other from 1998 till the present. And last the current markets scenario.