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The stylized facts of prediction markets: Analysis of price changes

Valerio Restocchi, Frank McGroarty and Enrico Gerding

Physica A: Statistical Mechanics and its Applications, 2019, vol. 515, issue C, 159-170

Abstract: Prediction markets are a powerful tool to make accurate predictions about the outcome of an event and, for this reason, they attract the interest of researchers and practitioners alike. To date, there exist no means of validation for quantitative models of prediction markets. To address this shortcoming, in this paper we compile a list of empirical regularities (stylized facts) of price changes we find by analyzing daily price changes from 3385 prediction markets on political events, a dataset provided by PredictIt. We find that price changes in prediction markets show characteristics similar to emerging markets, with some small differences.

Keywords: Prediction markets; Political markets; Stylized facts; Long memory; Power-law behavior (search for similar items in EconPapers)
Date: 2019
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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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