Super Tuesday snapshots

Following their near-draw on 'Super Tuesday', the candidates for the Democratic party's presidential nomination, Senators Hillary Clinton and Barack Obama, will focus their attention on the February 9-12 (Saturday to Tuesday) primaries in Washington state, Louisiana, Virginia and Maryland. 

In such a closely fought race, political scientists, media outlets and inveterate gamblers will all focus their attention on a new analytical tool -- political futures.  Yet an analysis of the election night gyrations of one market suggests that while political futures are a good indicator of current sentiment, they are less than reliable as predictors.

Three snapshots of the action at Intrade Prediction Markets, an Ireland-based firm, show the interplay of market sentiment and information.

Shortly before noon, Eastern Standard Time (EST) in the United States -- when polls had opened across the country but even the east coast was hours from reporting its results (Eastern Time, which covers states such as New York, is three hours ahead of California on the Pacific coast) -- markets were relatively flat.  There was some minor buying of futures covering both of the main contenders for the Republican nomination, but these were likely to be supporters placing bets.

The next snapshot covers the crucial 5pm EST threshold.  Two hours before the polls officially closed in the east, exit pollsters began to report the preliminary results of their surveys.  This is highly sensitive data, as indications that one candidate is scoring major victories in the east can influence the vote in the west -- a situation that developed during the 2004 presidential campaign.  Therefore, the major US media networks 'quarantine' their exit polling analysts at a secure facility, confiscate their mobile devices and even require security guards to accompany them when they use the lavatory.

If any of this closely held data were to leak out, it would certainly have a major impact on political futures.  Shortly after the threshold, Obama and McCain's prices jumped sharply.  However, this movement likely only reflected anecdotal early reports that both candidates were exceeding expectations in Georgia -- the first significant state to report in the East.

The final reading shows the situation early in the morning on February 6, after more than 70% of the California vote, which favoured Clinton over Obama, had been counted.  There were a series of wild gyrations in sentiment overnight, as first one state, and then another, was called for various candidates.  The final move was a late surge for Obama, after it became clear that Clinton's California victory was less substantial than initial indications suggested.

However, this volatility seemed mere knee-jerk reaction to transient sentiment, and offered little predictive insight.  Lacking access to key information, the market for each candidate's futures swung wildly as each state's results were announced -- even though most outcomes conformed to pre-election polling expectations.

Yet while this suggests that political futures markets are poor predictors, particularly on election night, they may serve as useful guides to current sentiment.  Take another look at the first and last election market snapshots:

• The Democratic party contest was scored by the media as a draw -- Clinton took the largest prizes in New York in California, but Obama won more states -- and the candidates emerged with essentially equal delegate totals. 
• But the market thinks that Obama, as the candidate that held the momentum prior Super Tuesday, improved his position by fighting the front-runner to a draw.  His futures rose from 46.0 to 49.0 over the course of the night.
• Clinton remains a marginal favourite, with a final reading of 51.9, but her advantage narrowed by almost a full point.