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Research by Prof. Rajiv Sethi examines betting during 2012 presidential election

A paper co-authored by Prof. Rajiv Sethi is receiving national media attention. The study, titled Trading Strategies and Market Microstructure: Evidence from a Prediction Market, examined how one "mystery trader" lost between $4 million and $7 million betting on a Mitt Romney victory in the 2012 Presidential Election. An excerpt from The Wall Street Journal:
 
“The trader remained bullish on Mr. Romney well into Election Night at a time when the GOP candidate’s odd of victory were clearly fading. But Mr. Sethi, who wrote a blog post on the study and teaches at both Columbia and Barnard, said in an interview that the pattern of the trader’s bets were not those of an irrational person. “This was someone who was extremely sophisticated. It was not someone who was dumb or stupid,” he said.”

Prof. Sethi and co-author David Rothschild reached no firm conclusion on the trader’s motivation, but leans toward the thesis that the unidentified trader was trying to increase perceptions of a Romney victory during the final 2012 campaign stretch.
 
"The main goal of the study was not to uncover possible manipulation, but to examine how new information is transmitted to asset prices through the activity of traders," Prof. Sethi told Barnard Communications. "We examined data on 84,000 separate transactions involving 3.5 million contracts and 3,200 trader accounts. Among these was one very large trader who participated in 13,000 transactions and ended up risking and losing four million dollars in two weeks. While the media has understandably focused on this trader's activity, it is incidental to the main message of the paper."

Read more about the study in New Republic, The Huffington Post, Politico, Business Insider, BuzzFeed, The Atlantic Wire, The New York Post, The Daily Mail, Gawker, and Slate.com. Prof. Sethi has also been blogging about the media response to the study.


Prof. Sethi
's recent research deals with credit derivatives and sovereign default, the dynamics of beliefs on networks, the economics of crime, and persistent inequality between social groups.