(This guest post comes courtesy of the author’s blog Wiser Than The Crowd)
Apparently, according to John Delaney, a good bit of the trading on the Health Care Reform market is coming from Washington, DC. Various people have claimed this is either insider trading or manipulation. I doubt it’s the former; there’s virtually no chance it’s the latter.
Let’s look at manipulation first. There was a brief spate of stories that the prospects for the legislation were looking up because the Intrade price had gone above 60. Inasmuch as the perception of inevitability tends to be a self-fulfilling prophecy, having a high Intrade price might help the bill’s passage. And it would be pretty cheap to manipulate the Intrade markets. In the context of spending millions in advertising, dumping $10,000 to keep the Intrade price up would be a pittance. In fact, if your manipulation works, you get your money back plus winnings.
It’s so cheap and easy, in fact, that there’s no reason to stop at 60. Why not push it to 75? If you’re going to advertise, why only push the price to “slightly better than a coin flip?” The further you push it, the more expensive it gets, but with $10,000 I could keep this contract above 75 for a couple weeks.
The other reason I rule out manipulation is that there are certain signs of manipulation – unusual trading patterns and the like. It would be quite difficult for someone without experience trading these markets to push them around and make it look like normal trading. I don’t see any evidence for that.
What about insider trading? Certain contracts are vulnerable to insider trading. If Tiger Woods cared about making a few thousand bucks on Intrade, he could certainly bet correctly on when he’ll return to golf. It’s a topic where he knows something with certainty that is hidden from the rest of the world. Health care is not like that. The primary actors don’t know how this is going to play out. Nancy Pelosi doesn’t know how 30-40 House Democrats will vote. Probably a lot of those people don’t know themselves how they’ll vote. The Tiger Woods-style of insider info just doesn’t exist here.
If you’re a Congressional staffer, you probably have a better feel than an outsider about the mood for reform. You might have information about parliamentary rulings an hour or less before they’re made public. You might know how your boss and a few of his friends will vote. Beyond that, though, there’s just not that much advantage to be had. Is it possible that someone close to the legislative process is trading this? Sure. Can they be certain about anything? Do we know whether they’ve gone long or short? No and no.
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