A Single Trader Lost Millions Betting On Mitt Romney On Intrade Late In The 2012 Election

A single trader lost between $US4 million and $US7 million placing a flurry of bets on Republican presidential candidate Mitt Romney on Intrade in the final two weeks of last year’s election,
according to a new research paperstudying election betting patterns.

Trader A, as the research paper dubs the trader, was responsible for about one-third of the money bet on Romney over the last two weeks — and about one-quarter over the entire cycle on Intrade.

The authors of the paper — economists Rajiv Sethi, of Barnard College and Columbia University, and David Rothschild, of Microsoft Research — speculate that Trader A’s intent was to manipulate Romney’s position.

Or, in the final few weeks of the election as Romney fell in polls, they determine that Trader A could have been attempting to manipulate beliefs about his standing to boost fundraising, morale, and turnout.

The economists determine three possibilities for the slew of bets:

(i) the trader was convinced that Romney was underpriced throughout the period and was expressing a price view, (ii) he was hedging an exposure held elsewhere, or (iii) he was attempting to distort prices in the market for some purpose.

Sethi and Rothschild draw no definitive conclusions, but they lean toward option No. 3.

Another surprising finding from the study: Trader A aside, political betting seems to be much more static than other trading markets.

The economists found that 86% of traders never changed once who they were betting on. That accounted for 52% of the volume of bench. Only 6% of bettors were determined to be “unbiased” by taking positions on both candidates as the race developed.

One of the biggest single-night shifts came on the night of the first presidential debate, which was viewed as a gigantic loss for President Barack Obama. Here’s a look at how his Intrade price cratered that night:

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