Prediction Markets and Poll Releases: When Are Prices Most Informative?

Alasdair Brown, J Reade and Leighton Vaughan Williams
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Alasdair Brown: University of East Anglia
Leighton Vaughan Williams: Nottingham Business School

No em-dp2018-02, Economics Discussion Papers from Department of Economics, University of Reading

Abstract: Prediction markets are a popular platform for eliciting incentivised crowd predictions. In this paper, we examine 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 and, as a result, price efficiency declines in the immediate aftermath of a poll release. It is not until more experienced traders enter the market in the following ours that price efficiency recovers. More generally, this suggests that information releases do not necessarily improve prediction market forecasts, but may instead attract noise traders who temporarily reduce price efficiency.

Keywords: prediction markets; opinion polls; price efficiency; information efficiency (search for similar items in EconPapers)
JEL-codes: C53 D82 D83 G14 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2018-03-20
New Economics Papers: this item is included in nep-for and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:emxxdp:em-dp2018-02

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