When are prediction market prices most informative? |
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| Institution: | 1. University of East Anglia, United Kingdom;2. University of Reading, United Kingdom;3. Nottingham Business School, United Kingdom;1. Institute of Sport, Exercise and Active Living, Victoria University, PO Box 14428, Melbourne 8001, VIC, Australia;2. Sport Science and Medicine Unit, Tennis Australia, PO Box 6060, Richmond South 3121, VIC, Australia;1. Université Laval, Quebec, Canada;2. University of Toronto, Ontario, Canada;3. McMaster University, Canada |
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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. |
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| Keywords: | Prediction markets Opinion polls Price efficiency Information efficiency |
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