Advanced Search
MyIDEAS: Login

How Prediction Markets Can Save Event Studies

Contents:

Author Info

  • Erik Snowberg
  • Justin Wolfers
  • Eric Zitzewitz

Abstract

This review paper articulates the relationship between prediction market data and event studies, with a special focus on applications in political economy. Event studies have been used to address a variety of political economy questions from the economic effects of party control of government to the importance of complex rules in congressional committees. However, the results of event studies are notoriously sensitive to both choices made by researchers and external events. Specifically, event studies will generally produce different results depending on three interrelated things: which event window is chosen, the prior probability assigned to an event at the beginning of the event window, and the presence or absence of other events during the event window. In this paper we show how each of these may bias the results of event studies, and how prediction markets can mitigate these biases.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w16949.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16949.

as in new window
Length:
Date of creation: Apr 2011
Date of revision:
Publication status: published as How Prediction Markets can Save Event Studies (with Justin Wolfers and Eric Zitzewitz) Prediction Markets, Leighton Vaughn Williams, Editor. Routledge, 2011.
Handle: RePEc:nbr:nberwo:16949

Note: AP LE LS POL
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Wolfers, Justin & Zitzewitz, Eric, 2004. "Prediction Markets," Research Papers 1854, Stanford University, Graduate School of Business.
  2. Brian Knight, 2004. "Are Policy Platforms Capitalized into Equity Prices? Evidence from the Bush/Gore 2000 Presidential Election," NBER Working Papers 10333, National Bureau of Economic Research, Inc.
  3. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2006. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," Working paper 230, Regulation2point0.
  4. Paul W. Rhode & Koleman Strumpf, 2008. "Historical Political Futures Markets: An International Perspective," NBER Working Papers 14377, National Bureau of Economic Research, Inc.
  5. Justin Wolfers & Eric Zitzewitz, 2006. "Interpreting prediction market prices as probabilities," Working Paper Series 2006-11, Federal Reserve Bank of San Francisco.
  6. Andrea Mattozzi, 2008. "Can we insure against political uncertainty? Evidence from the U.S. stock market," Public Choice, Springer, vol. 137(1), pages 43-55, October.
  7. Seema Jayachandran, 2004. "The Jeffords Effect," UCLA Economics Online Papers 297, UCLA Department of Economics.
  8. Pedro Santa-Clara & Rossen Valkanov, 2003. "The Presidential Puzzle: Political Cycles and the Stock Market," Journal of Finance, American Finance Association, vol. 58(5), pages 1841-1872, October.
  9. Ray C. Fair, 1996. "Econometrics and Presidential Elections," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 89-102, Summer.
  10. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2006. "Party Influence in Congress and the Economy," NBER Working Papers 12751, National Bureau of Economic Research, Inc.
  11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  12. Leigh, Andrew & Wolfers, Justin & Zitzewitz, Eric, 2003. "What do Financial Markets Think of War in Iraq?," Research Papers 1785, Stanford University, Graduate School of Business.
  13. Paul W. Rhode & Koleman S. Strumpf, 2004. "Historical Presidential Betting Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 127-141, Spring.
  14. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
  15. Justin Wolfers & Eric Zitzewitz, 2009. "Using Markets to Inform Policy: The Case of the Iraq War," Economica, London School of Economics and Political Science, vol. 76(302), pages 225-250, 04.
  16. Paul Rhode & Koleman Strumpf, 2006. "Manipulating political stock markets: A field experiment and a century of observational data," Natural Field Experiments 00325, The Field Experiments Website.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2012. "Prediction Markets for Economic Forecasting," CEPR Discussion Papers 9059, C.E.P.R. Discussion Papers.
  2. André Betzer & Markus Doumet & Ulf Rinne, 2013. "How policy changes affect shareholder wealth: the case of the Fukushima Dai-ichi nuclear disaster," Applied Economics Letters, Taylor & Francis Journals, vol. 20(8), pages 799-803, May.
  3. Yen-Teik Lee & Bang Dang Nguyen & Quoc-Anh Do, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Sciences Po publications 15, Sciences Po.
  4. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen & Kieu-Trang Nguyen, 2013. "Out of Sight, Out of Mind: The Value of Political Connections in Social Networks," Sciences Po publications 14, Sciences Po.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16949. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.