Wednesday, August 29, 2007

The Clinton Rally

I was not following politics closely while vacationing on Nantucket. So, to catch up on developments upon my return, I did what comes naturally to an economist: I checked market prices. According to intrade, the probability that Hillary Clinton will be the Democratic nominee is now better than two out of three.

Update: A reader emails an intriguing hypothesis to explain the rally:

Hello Dr Mankiw,

The last 5-10% of this move might be attributed to Intrade changing margin requirements on August 13th, which forced some large short Clinton /long Obama traders, already suffering losses, to liquidate. After the margin change, over-margined traders were extended a grace period of approximately one week, and from the 20th-22nd you can see the Obama contract drop sharply from 22 to a low of 15 on heavy volume and no real news. Given this, I think Obama is a buy here for a bounce back into the 20s.

Jason Ruspini