Analyzing Prediction Market Prices and Their Ability to Forecast Election Results
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School of Business |
Bachelor's thesis
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Authors
Date
2017
Department
Major/Subject
Mcode
Degree programme
Taloustiede
Language
en
Pages
24
Series
Abstract
This thesis discusses the use of prediction markets in event studies, more specifically what type of information can be extrapolated from prediction market prices and how can this information be used in order to forecast election results. The topic has been recently in the forefront of academic research of event studies as it has empirically been noted that prediction markets offer high predictive power and offer large sources of data in fields where data has been hard to come by. The intention of this thesis is to outline previous research on the topic and study the question with the help of current market theory. The theoretical basis that is used in this analysis draws from Eugene Fama’s efficient market hypothesis and Milgrom and Stokey’s information and trade under common knowledge to name a few. This thesis intends to critically examine whether or not there is any theoretical justification for using prediction markets as a support-tool for decision-making and what advantages and limitations there may be in deriving information from prediction market prices and in using it to forecast election results.Description
Thesis advisor
Murto, PauliKeywords
prediction markets, elections, forecasting, information markets, information economics