IDEAS home Printed from https://ideas.repec.org/a/buc/jpredm/v2y2008i3p33-46.html
   My bibliography  Save this article

The Effect of Stock Endowments on the Liquidity of Prediction Markets

Author

Listed:
  • Thomas Seemann
  • Harald Hungenberg

Abstract

Prediction markets are considered as a promising new forecasting method that has proven high prediction accuracy in many areas such as politics, sports, and business-related fields. The method is, however, far from being established or even understood. The specific circumstances and market designs that lead to efficient prediction markets need to be further identified. This paper tries to statistically analyze the impact of certain factors in market design. In particular, we analyze the impact of the initial endowments provided to new market participants on the liquidity of prediction markets. Market operators can provide either a cash endowment or a combination of a cash and stock endowment. By evaluating two play-money prediction markets run in parallel during the FIFA World Cup 2006, we show that the stock endowments significantly foster liquidity in the market. We recommend operators of online game markets as well as corporate prediction markets to provide stock and cash endowment to participants instead of pure cash endowments wherever feasible.

Suggested Citation

  • Thomas Seemann & Harald Hungenberg, 2008. "The Effect of Stock Endowments on the Liquidity of Prediction Markets," Journal of Prediction Markets, University of Buckingham Press, vol. 2(3), pages 33-46, December.
  • Handle: RePEc:buc:jpredm:v:2:y:2008:i:3:p:33-46
    as

    Download full text from publisher

    File URL: http://www.ingentaconnect.com/content/ubpl/jpm/2008/00000002/00000003/art00003
    Download Restriction: no

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:buc:jpredm:v:2:y:2008:i:3:p:33-46. 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: (Victor Matheson, College of the Holy Cross). General contact details of provider: http://www.ubpl.co.uk/ .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.