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When are prediction market prices most informative?

Alasdair Brown, J Reade () and Leighton Vaughan Williams

International Journal of Forecasting, 2019, vol. 35, issue 1, 420-428

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.

Keywords: Prediction markets; Opinion polls; Price efficiency; Information efficiency (search for similar items in EconPapers)
Date: 2019
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