Taking Another Gamble

Note: red sparkline bars indicate aggregate losses on IEM vote share contracts by month. Blue sparkline bars indicate aggregate gains. 

Since my last post about the discreet charms of gambling on election outcomes, I was kindly directed by IEM to its historical vote share contract prices for the 2000 and 2004 presidential elections. The table above shows that with these additional data, traders had still tended to overvalue Democratic candidates from August through October, while undervaluing Republican candidates. The extreme overvaluations of Hilary Clinton in 2016 still exert an influence, but it is much less pronounced. Excluding 2016 prices, Democratic candidates would still be overvalued in each month, but never by as much as 2%. Republican candidates would not be undervalued at all, except in August by about 3%. 

Hence from a gambling perspective, the IEM market appears reasonably accurate to the extent that there are not many information gaps left to exploit. Let me reiterate that nothing written here is intended to give any financial or investment advice or endorse gambling in any form, and reassert all the caveats that past results do not guarantee future performance, and acknowledge that I may have an incomplete understanding of the IEM (which has not vetted anything I have written), and that my calculations might include errors. It's just for fun.

Which nonetheless leaves the updated Werewolves Adjustment Factors (WAF) as shown in the table below:

WEREWOLVES ADJUSTMENT FACTORS (WAF)

PARTY	AUG	SEP	OCT	NOV
DEM	-2.9%	-5.8%	-4.4%	+0.3%
REP	+4.1%	+1.0%	+1.9%	+1.1%

Which means that by the Werewolves-adjusted (WA) method, the smart money in August still predicted a Harris popular vote victory in a blowout, 56% compared to Trump's 46%.

As of this writing (20 September 2024), the September 2024 WA prediction has Harris at 53% and Trump at 48%. The same day, Nate Silver's Silver Bullet predicts Harris at 49% and Trump at 46%, while the New York Times Poll Tracker predicts Harris at 49% and Trump at 47%. So the IEM traders look like they might be buying vote share contracts on the high side, for both candidates.

Time will tell. But the much derided, often used investment strategy of "buy high/sell low" may be guiding some of the action in the election markets this year.