Things were looking pretty dire for the American League as they had to face Eric Gagne in the 8th inning and John Smoltz in the 9th inning while they had a 2 run deficit. With one out in the 8th, Garret Anderson hit a double, sending the contingent contract price up to 22 cents. Earlier in the game a hit that did not score a run would not have had much effect on the price, but since it was late in the game and the score was close, investors knew that even a small change in circumstances could change the outcome. As a result, the price changes became more dramatic near the end of the game. A ground-out by Carl Everett sent the price down to 19 cents, but a run-scoring double by Vernon Wells sent the game to 6-5, and caused the price to rise to 52 cents. Although the American League was still losing, investors believed that with a runner on 2nd and 2 outs, they were slightly more likely to win the game than the National League side. Hank Blalock, the next hitter, hit a towering homerun which caused the American league to take a 7-6 lead very late in the game, and caused the price to escalate all the way to 85 cents. In a matter of 10 minutes, the value of the contingent contract had increased 8-fold, and investors who bought at 10 cents suddenly had a very valuable asset. With the 8th inning over, the American League needed just three more outs to win the game. They would get those three outs and not score any runs. During the 9th inning the price of the contract rose from 85 cents to 1 dollar, the price it eventually paid to the holder.
The effect of the All-Star game was seen in other contracts. A day before the All-Star game, the contract which paid $1 if the Yankees won the World Series was selling for 20 cents. The league that won the All-Star Game would win home field advantage in the World Series. Teams win more often than not when they have the homefield advantage, so the outcome of the game was important. The Yankees, seen as the most likely American League team to make it to the World Series, were seen as slightly more likely to win the World Series by investors. A contract which pays $1 if the Yankees win the series was selling for 20 cents the day before the All-Star Game, but had climed in price to 21 cents the day after. Investors took their new knowledge about homefield advantage in the World Series, and slightly upgraded the value of all the contingent contracts for American League teams and slightly downgraded the value of the National League teams.
Next we'll look at some more practical applications of how information causes prices changes and how we can extract information from price changes.
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