LIQUIDITY PROVISION AND CROSS ARBITRAGE IN CONTINUOUS DOUBLE-AUCTION PREDICTION MARKETS

Werner Antweiler

Journal of Prediction Markets, 2013, vol. 7, issue 3, 61-86

Abstract: Continuous double-auction prediction markets often exhibit low transaction volume due to substantial bid-ask spreads. This paper explores a novel method of providing artificial liquidity in continuous double-auction prediction markets by introducing an automated market maker that engages in zero-profit cross-arbitrage in multi-contract markets. Empirical analysis of observed bid-ask spreads, liquidity, offer acceptance, and order sizes in the 2008 UBC Election Stock Market provides additional new insights into the micro-structure of prediction markets.

Keywords: prediction markets; liquidity (search for similar items in EconPapers)
JEL-codes: L83 (search for similar items in EconPapers)
Date: 2013
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