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An Examination of Prediction Market Efficiency: NBA Contracts on Tradesports

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  • Richard Borghesi

Abstract

In this paper I examine the absolute and relative price efficiency of NBA options listed on Tradesports. com. I find that contracts within specific price bands are misvalued, but also demonstrate that this market is more efficient than is the market for NFL options. Specifically, I show that contracts priced around $25 win (expire at $100) at a rate less than expected, while those priced around $75 win at a rate greater than expected. The magnitudes of these deviations between prices and fundamental values are less than those in the NFL market. Also, while prior theoretical work predicts that low-priced contracts should be overpriced, I instead find that NBA contracts priced near $2.50 win more frequently than expected.

Suggested Citation

  • Richard Borghesi, 2009. "An Examination of Prediction Market Efficiency: NBA Contracts on Tradesports," Journal of Prediction Markets, University of Buckingham Press, vol. 3(2), pages 65-77, August.
  • Handle: RePEc:buc:jpredm:v:3:y:2009:i:2:p:65-77
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    Cited by:

    1. Richard Borghesi, 2014. "The impact of the disposition effect on asset prices: insight from the NBA," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(4), pages 698-711, October.

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