When are prediction market prices most informative?

Alasdair Brown, J. James Reade, Leighton Vaughan Williams

Research output: Contribution to journalArticle

6 Citations (Scopus)
8 Downloads (Pure)

Abstract

Prediction markets are a popular platform for the elicitation of incentivised crowd predictions. This paper examines the variation in the information contained in prediction market prices by studying Intrade prices on U.S. elections around the release of opinion polls. We find that poll releases stimulate an immediate uptick in trading activity. However, much of this activity involves relatively inexperienced traders, meaning that the price efficiency declines in the immediate aftermath of a poll release, and does not recover until more experienced traders enter the market in the following hours. More generally, this suggests that information releases do not necessarily improve prediction market forecasts, but instead may attract noise traders who temporarily reduce the price efficiency.
Original languageEnglish
Pages (from-to)420-428
Number of pages9
JournalInternational Journal of Forecasting
Volume35
Issue number1
Early online date9 Aug 2018
DOIs
Publication statusPublished - Jan 2019

Keywords

  • Prediction markets
  • opinion polls
  • price efficiency
  • information efficiency

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