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Majumder SR, Diermeier D, Rietz TA, et al. Price dynamics in political prediction markets. Proc Natl Acad Sci U S A. 2009;106(3):679-84doi: 10.1073/pnas.0805037106.
Majumder, S. R., Diermeier, D., Rietz, T. A., & Amaral, L. A. (2009). Price dynamics in political prediction markets. Proceedings of the National Academy of Sciences of the United States of America, 106(3), 679-84. https://doi.org/10.1073/pnas.0805037106
Majumder, Saikat Ray, et al. "Price dynamics in political prediction markets." Proceedings of the National Academy of Sciences of the United States of America vol. 106,3 (2009): 679-84. doi: https://doi.org/10.1073/pnas.0805037106
Majumder SR, Diermeier D, Rietz TA, Amaral LA. Price dynamics in political prediction markets. Proc Natl Acad Sci U S A. 2009 Jan 20;106(3):679-84. doi: 10.1073/pnas.0805037106. PMID: 19155442; PMCID: PMC2630077.
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Proc Natl Acad Sci U S A. 2009 Jan 20;106(3):679-84. doi: 10.1073/pnas.0805037106.

Price dynamics in political prediction markets.

Proceedings of the National Academy of Sciences of the United States of America

Saikat Ray Majumder, Daniel Diermeier, Thomas A Rietz, Luís A Nunes Amaral

Affiliations

  1. Northwestern Institute on Complex Systems, Northwestern University, Evanston, IL 60208, USA.

PMID: 19155442 PMCID: PMC2630077 DOI: 10.1073/pnas.0805037106

Abstract

Prediction markets, in which contract prices are used to forecast future events, are increasingly applied to various domains ranging from political contests to scientific breakthroughs. However, the dynamics of such markets are not well understood. Here, we study the return dynamics of the oldest, most data-rich prediction markets, the Iowa Electronic Presidential Election "winner-takes-all" markets. As with other financial markets, we find uncorrelated returns, power-law decaying volatility correlations, and, usually, power-law decaying distributions of returns. However, unlike other financial markets, we find conditional diverging volatilities as the contract settlement date approaches. We propose a dynamic binary option model that captures all features of the empirical data and can potentially provide a tool with which one may extract true information events from a price time series.

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