Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
8953663 | European Journal of Operational Research | 2019 | 47 Pages |
Abstract
We examine the impact of price trends on the accuracy of forecasts from prediction markets. In particular, we study an electronic betting exchange market and construct independent variables from market price (odds) time series from 6058 individual markets (a dataset consisting of over 8.4 million price points). Using a conditional logit model, we find that a systematic relationship exists between trends in odds and the accuracy of odds-implied event probabilities; the relationship is consistent with participants over-reacting to price movements. In particular, in different time segments of the market, increasing and decreasing odds lead, respectively, to under- and over-estimation of odds-implied probabilities. We develop a methodology to detect and correct the erroneous forecasts associated with these trends in odds in order to considerably improve the quality of forecasts generated in prediction markets.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Ming-Chien Sung, David C.J. McDonald, Johnnie E.V. Johnson, Chung-Ching Tai, Eng-Tuck Cheah,