It does appear, however, that price manipulation by a single trader who accumulated a large directional position on Romney may have been a factor. This trader accounted for one-third of all bets placed on Romney during our observational window, and lost almost four million dollars in the process. This position was accumulated by placing large bids for Romney and large o ffers for Obama that eff ectively created a firewall, preventing prices from moving in response to incoming information. This resulted in remarkable stability in Intrade prices for several hours on Election Day, and at other critical moments of the campaign, even as prices on Betfair were moving sharply. On Election Day, these orders were removed just as voting ended in Colorado, the last swing state to close its polls. The e ect was a sharp price movement and immediate convergence to the Betfair odds. Financial gain though correlated changes in stock prices seems an unlikely motivation for this activity, since these correlations appear to have broken down in 2012. More plausibly, this trader could have been attempting to manipulate beliefs about the odds of victory in an attempt to boost fundraising, campaign morale, and turnout.
And the biased vs unbiased numbers:
Manipulation aside, one of our most striking findings is that 86% of traders, accounting for 52% of volume, never change the direction of their exposure even once. A further 25% of volume comes from 8% of traders who are strongly biased in one direction or the other. A handful of arbitrageurs account for another 14% of volume, leaving just 6% of accounts and 8% of volume associated with individuals who are unbiased in the sense that they are willing to take directional positions on either side of the market. This suggests that information fi nds its way into prices largely through the activities of traders who are biased in one direction or another, and diff er not only with respect to their private information but also with respect to their interpretations of public information.
