Wednesday, March 27, 2013

Someone is trying to boost the BC Conservatives in the Sauder Prediction Markets

Over the last few days someone has been taking part in the Sauder School of Business Prediction Market for the 2013 BC Election and they have been buying up BC Conservative popular vote and seat shares for very high prices.     What this highlights is that as long as there is not a lot of money and few active traders in the market it is not that hard to manipulate the market.

As of yesterday the market only had $7,879 invested and the trading volumes have been less than 100 shares in each of the three markets till about three days ago.   Today we saw 450 Conservative seat shares change hands and over 200 in the popular vote market.    This is much higher than on any other day before but still only amounts to a total of $80 to $85 in value.  

Since the Sauder School Prediction Markets have partnered with the Global and Mail, the small trading volumes are getting press everyday.    As I writing this the market has the BC Conservatives at 17.6% and predicted to win 8 seats, both of these results are not even close to what all the other evidence is saying about the election.   The fact that a small amount of trades can influence the results of the market is not good.

Until there a lot more active traders in the market, it will be possible to significantly manipulate the market without a lot of money.

The bright side of this for people is that there are people out there willing to part with their money for the benefit of their party.   There is good money to be made in NDP shares in all three markets, a 20% return between now and election day is reasonable.   If you think the Liberals might get over 30% of the vote and take 25 seats, there is money you can make.

If you were to only invest in buying NDP majority government shares, something that everyone that knows anything about BC politics knows is going to happen, you will make a 6.1% return on election day.

The more people that take part in the market, the more the results will reflect the wisdom of the crowd.   Ideally there would be 1000 to 2000 investors putting in a total of $100,000.


Erik said...

Good for the rest of us who can make some money shorting the Conservatives. Downside is, in seat share even their boosters don't think they'll get many, making it expensive to cover the short for only a few cents of gain.

Charles said...

I may be responsible for some of that trading volume myself as a counterparty. I have been trying to effectively "short" BC Conservative seat shares to force them down to a reasonable value. But the only way to do this is to buy unit portfolios and then sell the Conservative shares. For lack of desire to pump massive amounts of money into the market, I then subsequently try and unload the rest of my seat shares at prices that allow me to either break even or make a small profit. Then I buy more unit portfolios and start again, because by the time I'm finished doing that someone has once again posted high 8-10 cent bids on the Con seat shares.

My own trades are responsible for the following volumes of CON seat shares:
March 24th, 26 sold
March 25th, 25 sold
March 26th, 25 sold
March 27th, 62 sold (on this day I went through two full cycles of buying unit portfolios, selling off, buying again)

I have reason to suspect it's only one or two people posting these high CON seat share bids, because the bids reappear erratically throughout the day rather than at the frequency one might expect of several traders operating independently.

Charles said...

More evidence that *one* individual is responsible for bidding up Conservative seat share.

Today I bought more unit portfolios and started selling CON seat shares again. Here is how it played out:

- Against a 7.50 bid for 10 shares, I sold 10 at market and filled the bid.
- Against a 7.25 bid for 13 shares, I sold 13 at market and filled the bid.
- Against a 7.00 bid for 20 shares, I sold 20 at market... now it gets interesting. Partial fill of only 3 shares. Order collapsed.
- All subsequent bids, I enter a market sell to try and fill the bid, and the bid collapses. Eventually one contract sells at 6 cents.

My guess is that a "collapse" means the buyer entered a bid order but no longer has the cash in their account to complete that purchase. The bids don't collapse until the system attempts a fill and fails. I'm now down to a bid for 4 shares at 5.60, after multiple collapses. Again collapsed. 3 shares at 5.50, collapsed. Finally we get down to a bid for 6 shares at 4.00. Sell one share at market... filled!

This is the first time I've ever experienced a collapse in over a week of trying out the market. The fact that *every* bid would collapse from 7.00 down to 5.50 suggests that one individual bidder account is responsible for that whole group of bids, and the one bidder down at 4 cents is someone else who clearly assigns a lower value to those shares.

I bought one single unit portfolio in the popular vote market too, and tried selling it at market (highest bid was in the 19 cent range, forgot to record it). Order collapsed. I tried twice more and then started tracking the bids.

3 @ 16.50, collapsed
4 @ 16.25, collapsed
21 @ 15.50, collapsed
9 @ 12.00, SOLD my one share.

So it's also a reasonable conclusion that the same bidder who pumped the seat shares up was also doing the same to popular vote. Nobody else in the market was willing to bid more than 12 cents for the CON popular vote shares.

Erik said...

Interesting Charles that the system will display bids that the buyer does not have the funds to cover. Easy way for someone to give a false impression of share values without having to lose much money.

Charles said...

Erik: Indeed. The system only checks for sufficient funds or shares to cover at the time of placing the bid or ask. So if you have 50 shares you can put in a boatload of sell orders for 50 shares at different prices. Once you sell them the other orders remain in the system until a counterparty collapses the order.