CAN PREDICTION MARKETS MITIGATE PRICE BIASES?

Article Sidebar

Requires Subscription or Fee PDF (GBP 25)
Published: May 24, 2013
DOI: https://doi.org/10.5750/jpm.v7i1.628

Main Article Content

Richard Borghesi
Texas State University McCoy College of Business Administration Department of Finance and Economics

Abstract

This study examines the pre-game and within-game price movements of contracts listed on Tradesports to determine whether relevant information is quickly and accurately embedded into asset prices.  Each contract represents a totals (over/under) bet on an NFL game.  In traditional casino-style totals betting markets, it has been demonstrated that the effects of adverse weather conditions are not fully incorporated into totals bet prices.  If prediction markets are more efficient that are traditional NFL betting markets, then this price bias should be mitigated.  We find that while price biases disappear quickly after kickoff, prior to this point they remain largely intact suggesting that casino-style markets and prediction markets may have similar informational limitations.

Article Details

Issue
Vol. 7 No. 1 (2013)
Section
Articles

References

Berg, Joyce, Forrest Nelson, and Thomas Rietz, 2000. Results from a Dozen Years of Election Futures Markets Research, Technical Report, University of Iowa.

Berg, Joyce, Forrest Nelson, and Thomas Rietz, 2003. Accuracy and Forecast Standard Error of Prediction Markets, Working Paper, University of Iowa.

Borghesi, Richard, 2007. Price Biases in a Prediction Market: NFL Contracts on Tradesports, The Journal of Prediction Markets 1(3), 233-253.

Borghesi, Richard, 2009. The Effect of Contract Structure on Prediction Market Price Biases, The Journal of Prediction Markets 3(3), 1-12 (lead article).

Borghesi, Richard, 2009. An Examination of Prediction Market Efficiency: NBA Contracts on Tradesports, The Journal of Prediction Markets 3(2), 65-77.

Borghesi, Richard, 2012. The Implications of an RFL Bias in a Prediction Market, The Journal of Prediction Markets 6(2), 12-21.

Chen, Kay-Yut and Charles Plott, 2002. Information Aggregation Mechanisms: Concept, Design, and Field Implementation for a Sales Forecasting Problem, Social Science Working Paper No. 1131. California Institute of Technology.

Ortner, Gerhard, 1998. Forecasting Markets - An Industrial Application, Working Paper, Technical University of Vienna.

Paul, Rodney and Andrew Weinbach, 2002. Market Efficiency and a Profitable Betting Rule, Journal of Sports Economics 3(3), 256-263.

Pennock, David, Steve Lawrence, C. Lee Giles, and Finn Nielsen, 2001. The Power of Play: Efficiency and Forecast Accuracy in Web Market Games, NEC Research Institute Technical Report 2000-168.

Tetlock, Paul, 2009, Liquidity and Prediction Market Efficiency, Working Paper, Columbia University.

Wolfers, Justin and Eric Zitzewitz, 2005. Five Open Questions about Prediction Markets, Working Paper, Stanford University and University of Pennsylvania.