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Event Studies in Real- and Play-Money Prediction Markets

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Author Info

  • Christian Slamka
  • Arina Soukhoroukova
  • Martin Spann

Abstract

Event study methodology is a powerful procedure to quantify the impact of events and managerial decisions such as new product announcements on the value of a publicly traded company. However, for many events, appropriate financial data may not be available, either because suitable securities are not traded on financial markets or confounding effects limit the insights from financial data. In such instances, prediction markets could potentially provide the necessary data for an event study. Prediction markets are electronic markets where participants can trade stocks whose prices reflect the outcome of future events, e.g. election outcomes, sports results, new product sales or internal project deadlines. One key distinction between different prediction market applications is whether they require real money investments or play-money investment with non-monetary incentives for traders. Thus, the goal of this paper is to compare prediction markets' ability to conduct event studies with respect to these two different incentive schemes. We empirically test the applicability of event study methodology in real-money vs. play-money prediction markets with two data sets. We show that event studies with prediction markets deliver robust and valid results with both incentive schemes.

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Bibliographic Info

Article provided by University of Buckingham Press in its journal Journal of Prediction Markets.

Volume (Year): 2 (2008)
Issue (Month): 2 (September)
Pages: 53-70

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Handle: RePEc:buc:jpredm:v:2:y:2008:i:2:p:53-70

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Web page: http://www.ubpl.co.uk/

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Web: http://www.predictionmarketjournal.com/index_files/Page418.htm

Related research

Keywords: PREDICTION MARKETS; EVENT EVALUATION; DECISION MAKING; EVENT STUDIES; PLAY MONEY VS. REAL MONEY;

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Cited by:
  1. Renaud Coulomb & Marc Sangnier, 2012. "Impacts of Political Majorities on French Firms: Electoral Promises or Friendship Connections?," PSE Working Papers halshs-00671405, HAL.
  2. Coulomb, Renaud & Sangnier, Marc, 2014. "The impact of political majorities on firm value: Do electoral promises or friendship connections matter?," Journal of Public Economics, Elsevier, vol. 115(C), pages 158-170.

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