Manipulation in political stock markets – preconditions and evidence

Abstract

Political stock markets (PSM) are sometimes seen as substitutes for opinion polls. On the bases of a behavioural model, specific preconditions were drawn out under which manipulation in PSM can weaken this argument. Evidence for manipulation is reported from the data of two separate PSM during the Berlin 1999 state elections.

Acknowledgements

The authors would like to thank Werner Güth, Robin Hanson, Forrest Nelson and the participants of the workshop on ‘Prediction Markets’ that took place at the Humboldt University Berlin in June 2000, for helpful comments and suggestions. They also thank Lars Handrich and Steffen Weber for writing comments published in the daily column of the Berliner Zeitung. The financial support from the German Research Foundation (DFG grant no. SFB 373/C5), the Berliner Zeitung and the Berliner Volksbank is gratefully acknowledged.

Notes

¹ Figures were presented by Forrest Nelson at the workshop on ‘Prediction Markets’ in Berlin 2000.

² The rather naïve explanation according to which a trader's individual voting behaviour is influenced by investment decisions can be excluded.

³ The maximum investment is usually limited due to legal restrictions.

⁴ This includes non-electives. Source: MA 99, AG.MA e.V., Media Micro-Census GmbH.

⁵ The email was forwarded to a member of the Wahlboerse team by a subscriber of the FDP member mailing list. A copy of the email (in German) can be provided on request.

⁶ We were not able to receive the complete data of the Wahl$treet market from the organiser. A regular analysis of the data of the Wahlboerse can be found in Handrich and Roericht (2001).

⁷ Though the daily number of trades and the trade volume in FDP contracts rose after the email was sent out, the same tendency was observed with all the other contracts as well.

⁸ The party affiliation of the participants was obtained by a questionnaire.