PREDICTION MARKETS AS A TOOL FOR MANAGEMENT OF POLITICAL RISK

2012 ◽  
Vol 2 (2) ◽  
pp. 1-12
Author(s):  
O Berrgfjord
Keyword(s):  
Predictive Power ◽  
Political Risk ◽  
Prediction Markets ◽  
Prediction Market ◽  
Political Decisions

Recently, several prediction markets for various events have been launched. The literature so far has focused on the predictive power of such markets. This paper considers such markets as tools for management of political risk. It outlines a model for use and pricing of such assets, and discusses the various benefits of a well-functioning, liquid prediction market for political decisions. 

scholarly journals Prediction Markets for Crowdsourcing

2018 ◽  
Author(s):  
Christian Horn ◽  
Marcel Bogers ◽  
Alexander Brem*
Keyword(s):  
Stock Market ◽  
Open Innovation ◽  
Innovation Process ◽  
Business Practice ◽  
Prediction Markets ◽  
Knowledge Sources ◽  
Prediction Market ◽  
Online Platform ◽  
External Knowledge ◽  
Opening Up

Crowdsourcing is an increasingly important phenomenon that is fundamentally changing how companies create and capture value. There are still important questions with respect to how crowdsourcing works and can be applied in practice, especially in business practice. In this chapter, we focus on prediction markets as a mechanism and tool to tap into a crowd in the early stages of an innovation process. The act of opening up to external knowledge sources is also in line with the growing interest in open innovation. One example of a prediction market, a virtual stock market, is applied to open innovation through an online platform. We show that use of mechanisms of internal crowdsourcing with prediction markets can outperform use of external crowds.

A STATISTICAL MODEL OF CLAIM PRICES IN PREDICTION MARKETS

2012 ◽  
Vol 4 (3) ◽  
pp. 85-93
Author(s):  
Russ Ray
Keyword(s):  
Statistical Model ◽  
Financial Markets ◽  
Poisson Distribution ◽  
Prediction Markets ◽  
Inside Information ◽  
Prediction Market ◽  
The World ◽  
Global Agreement ◽  
High Degree

This paper finds that claim prices in prediction markets, a new genre of financial markets, follow a Poisson distribution. The significance of this finding is that as soon as a claim in a prediction market is created and thereafter flushes out expert and inside information from around the world regarding that particular claim, claim prices immediately begin forming bell-shaped distributions, implying global agreement regarding the probabilities of claims being realized. This is an interesting finding, implying a surprisingly high degree of global homogeneity of inside information in predictions markets, even though such information is scattered in disconnected and secretive pockets around the world. This finding could also imply that cultural diversities do not significantly affect the interpretation of information in prediction markets. 

Evidencing the Forecasting Performance of Predication Markets: An Empirical Comparative Study

2018 ◽  
Vol 11 (2) ◽  
pp. 60-76
Author(s):  
Patrick Buckley
Keyword(s):  
Empirical Studies ◽  
Academic Research ◽  
Relevant Information ◽  
Prediction Markets ◽  
Problem Space ◽  
Prediction Market ◽  
Forecasting Performance ◽  
Planning Processes ◽  
Uncertain Outcomes ◽  
Aid Decision

Accurately forecasting uncertain outcomes to inform planning processes and aid decision making is a perennial organisational challenge, and the focus of a substantial body of research in management science, information systems and related disciplines. Academic research suggests that prediction markets may be of significant benefit to organisations in meeting this challenge. However most of the empirical studies assessing prediction market performance are laboratory based and suffer from limits to their generalizability. Recent literature has called for research which analyses the performance of prediction markets in ecologically valid settings in order to evidence their effectiveness to potential organisational users. This paper answers these calls by designing a prediction market to forecast an uncertain real world event. The study then compares the forecasting performance of the prediction market with a number of more traditional forecasting approaches regularly used by organisations. The study is contextually situated in a low information heterogeneity problem space, where relevant information is freely available. The results suggest that in this context prediction markets outperform the other forecasting methods studied.

PRIVATE PREDICTION MARKETS AND THE LAW

2012 ◽  
Vol 3 (1) ◽  
pp. 89-110 ◽  
Author(s):  
Tom Bell
Keyword(s):  
Prediction Markets ◽  
Management Decisions ◽  
Prediction Market ◽  
The Public ◽  
Legal Risks ◽  
Federal Laws ◽  
The Law ◽  
Considerable Benefit

This paper analyses the legality of private prediction markets under U.S. law, describing both the legal risks they raise and how to manage those risks.  As the label "private" suggests, such markets offer trading not to the public but rather only to members of a particular firm.  The use of private prediction markets has grown in recent years because they can efficiently collect and quantify information that firms find useful in making management decisions.  Along with that considerable benefit, however, comes a worrisome cost:  the risk that running a private prediction market might violate U.S. state or federal laws.  The ends and means of private prediction markets differ materially from those of futures, securities, or gambling markets.  Laws written for those latter three institutions nonetheless threaten to limit or even outlaw private prediction markets.  As the paper details, however, careful legal engineering can protect private prediction markets from violating U.S. laws or suffering crushing regulatory burdens.  The paper concludes with a prediction about the likely form of potential CFTC regulations and a long-term strategy for ensuring the success of private prediction markets under U.S. law.

scholarly journals Regulation of Prediction Markets Under the Financial Markets Conduct Act 2013

2015 ◽  
Vol 46 (1) ◽  
pp. 137
Author(s):  
Kelsey Brooke Farmer
Keyword(s):  
New Zealand ◽  
Financial Markets ◽  
Regulatory Compliance ◽  
Recent History ◽  
Securities Markets ◽  
Prediction Markets ◽  
Prediction Market ◽  
Securities Law

The Financial Markets Conduct Act 2013 (FMC Act) represents the most substantial overhaul of New Zealand's securities law in recent history. The regulation of derivatives in particular featured high on the agenda as an area in need of reform and, as a result, the FMC Act is much more clear than the Securities Act 1978 and Securities Markets Act 1988 with respect to typical derivative agreements. The focus of this article, however, is on the atypical: the use of derivatives in prediction markets. This article examines whether New Zealand-based prediction market iPredict will be regulated under the FMC Act and, if so, how it will be regulated. The conclusion reached is that iPredict can operate under the FMC Act only if the Financial Markets Authority declares that its contracts are derivatives and grants substantial exemptions from regulatory compliance. This article then makes recommendations for a more coherent approach to the regulation of prediction markets by analogy with the new prescribed intermediary service licences under the FMC Act. 

ARBITRAGE TRADE IN PREDICTION MARKETS

2013 ◽  
Vol 6 (3) ◽  
pp. 14-26
Author(s):  
O Bergfjord ◽  
P. Kildal ◽  
T.A. McPherson ◽  
L.R. Loftaas ◽  
K. Valvik
Keyword(s):  
Presidential Election ◽  
Prediction Markets ◽  
Prediction Market ◽  
Political Opinion ◽  
Arbitrage Opportunities ◽  
Political Events ◽  
The Us ◽  
Time Zones ◽  
Using Data

By using data from five similar prediction market (PM) contracts on the 2008 American presidential election in two different market places targeted at investors of different nationalities, we investigate whether arbitrage opportunities across borders and market places exist in these markets. We find that arbitrage opportunities are rare and difficult to exploit.  Markets in these political events seem to be fairly efficient, even if they are located in different countries, time zones and are relatively small. However, inter-market arbitrage opportunities exist, and we hypothesize that this can be explained by differences in political opinion between the US and other countries.

DO POLLS OR MARKETS FORECAST BETTER? EVIDENCE FROM THE 2010 US SENATE ELECTIONS

2012 ◽  
Vol 5 (3) ◽  
pp. 64-74
Author(s):  
Leighton Vaughan Williams ◽  
Blake Saville ◽  
Herman Stekler
Keyword(s):  
Prediction Markets ◽  
Election Campaigns ◽  
Prediction Market ◽  
Senate Elections ◽  
Significant Difference ◽  
Betting Markets ◽  
Senate Election ◽  
Us Senate ◽  
Opinion Polls

In this paper, we seek to examine how well prediction markets performed, compared to opinion polls, in forecasting the outcome of the 2010 US Senate elections. Prediction markets are speculative or betting markets created or employed for the purpose of aggregating information and making predictions. To do this, we used data from the 2010 US Senate election campaigns, comparing the performance of an established prediction market with opinion polls. Overall we found no significant difference in the forecasting ability of the polls and prediction markets in the Senate races under examination.

IMPROVING FORECASTING ACCURACY IN CORPORATE PREDICTION MARKETS – A CASE STUDY IN THE AUSTRIAN MOBILE COMMUNICATION INDUSTRY

2012 ◽  
Vol 3 (3) ◽  
pp. 49-62
Author(s):  
Martin Waitz ◽  
Andreas Mild
Keyword(s):  
Predictive Ability ◽  
Market Mechanism ◽  
Prediction Markets ◽  
Data Sets ◽  
Success Rates ◽  
Prediction Market ◽  
Communication Industry ◽  
Market Participants ◽  
Market Shares ◽  
Continuous Double Auction

Corporate prediction markets forecast business issues like market shares, sales volumes or the success rates of new product developments. The improvement of its accuracy is a major topic in prediction market research. Mostly, such markets are using a continuous double auction market mechanism. We propose a method that aggregates the data provided by such a prediction market in a different way by only accounting for the most knowledgeable market participants. We demonstrate its predictive ability with a real world experiment.We want to thank Günter Fädler from pro:kons, an Austrian provider of prediction markets, for his support and providing us with the data sets used in this paper.

INFLUENCES ON THE TRUST IN PREDICTION MARKETS

2012 ◽  
Vol 3 (2) ◽  
pp. 1-20
Author(s):  
Thomas Seemann ◽  
Albrecht Enders ◽  
Harald Hungenberg
Keyword(s):  
Empirical Study ◽  
Structural Equation Model ◽  
Prediction Accuracy ◽  
Structural Equation ◽  
Equation Model ◽  
Prediction Markets ◽  
Prediction Market ◽  
Experimental Prediction ◽  
Forecasting Method ◽  
High Prediction

  Prediction markets are an innovative forecasting method that has proven high prediction accuracy in many areas. The method is, however, far from being established since many organizations are still reluctant to use the method. In particular the trust in the forecast results is a key challenge that negatively impacts the adoption of the method. To get a better understanding of what drives trust in prediction markets we analyzed the perceptions of prediction market users. We identify factors that influence the trust and quantified them in an empirical study. The study is based on user surveys in six experimental prediction markets. The influencing factors were evaluated using a structural equation model. The results demonstrate that participants who are highly engaged and perceive trading in prediction market as exciting and entertaining also put a higher trust in the market results.   

PREDICTIVE POWER OF INFORMATION MARKET PRICES

2012 ◽  
Vol 5 (2) ◽  
pp. 44-74
Author(s):  
Maria Putintseva
Keyword(s):  
Predictive Power ◽  
Prediction Markets ◽  
Behavioral Experiments ◽  
Market Prices ◽  
Underlying Asset ◽  
Information Markets ◽  
Additional Information ◽  
Dow Jones Industrial Average ◽  
Future Events ◽  
Binary Options

Prediction (or information) markets are markets where participants trade contracts whose payoff depends on unknown future events. Studying prediction markets allows to avoid many problems, which arise in some artificially designed behavioral experiments investigating collective decision making or individual's belief formation. This work is aimed, first, to verify whether predictions made by prices of binary options traded in information markets are reliable and whether the prices contain additional information about the future comparing to the information available from the dynamics of underlying asset only. Second, inter- and intraday microstructure of the market of binary options on Dow Jones Industrial Average index is examined and described quantitatively. Third, since some ability to forecast future changes in the underlying asset is detected, a simple trading strategy based on observing the trading process in the prediction market is suggested and its profitability and applicability is evaluated.

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