When are prediction market prices most informative?

Brown, Alasdair, Reade, J. James and Vaughan Williams, Leighton (2019) When are prediction market prices most informative? International Journal of Forecasting, 35 (1). pp. 420-428. ISSN 0169-2070

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    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.

    Item Type: Article
    Uncontrolled Keywords: prediction markets,opinion polls,price efficiency,information efficiency
    Faculty \ School: Faculty of Social Sciences > School of Economics
    Depositing User: Pure Connector
    Date Deposited: 16 May 2018 14:31
    Last Modified: 01 Jan 2019 04:30
    URI: https://ueaeprints.uea.ac.uk/id/eprint/67084
    DOI: 10.1016/j.ijforecast.2018.05.005

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