Consistency in the US Congressional Popular Opinion Polls and Prediction Markets
Prediction and betting markets have evolved with contracts based on electoral outcomes and the traded prices provide a measure of speculators' views on electoral outcomes. Conversely, popular opinion polls yield data which provide statistics on the public's declared voting intentions. This article formulates a model to describe the stochastic evolution of opinion polls, and the resultant probability distribution of seats won in the US House of Congress. Based on standard methods from financial option pricing theory, we can then determine the theoretical value of observed contracts in the prediction markets. Our results show that qualitative predictions are obeyed, but there exist significant deviations between the actual prices traded in the Iowa Electronic Market (IEM) and our theoretical valuation under real-world expectations. Some explanations are provided, which are consistent with conclusions drawn by other authors who have studied electoral prediction markets.
Volume (Year): 4 (2010)
Issue (Month): 2 (September)
|Contact details of provider:|| Web page: http://www.ubpl.co.uk/|
|Order Information:|| Web: http://www.predictionmarketjournal.com/index_files/Page418.htm Email: |
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.:
- Ito, Takatoshi, 1990. "The timing of elections and political business cycles in Japan," Journal of Asian Economics, Elsevier, vol. 1(1), pages 135-156.
- Eisinga, Rob & Franses, Philip Hans & Ooms, Marius, 1999. "Forecasting long memory left-right political orientations," International Journal of Forecasting, Elsevier, vol. 15(2), pages 185-199, April.
- Smith, Alastair, 2003. "Election Timing in Majoritarian Parliaments," British Journal of Political Science, Cambridge University Press, vol. 33(03), pages 397-418, July.
- 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.
- Holbrook, Thomas M. & DeSart, Jay A., 1999. "Using state polls to forecast presidential election outcomes in the American states," International Journal of Forecasting, Elsevier, vol. 15(2), pages 137-142, April.
- Lionel Page, 2008. "Comparing Prediction Market Prices and Opinion Polls in Political Elections," Journal of Prediction Markets, University of Buckingham Press, vol. 2(1), pages 91-97, May.
When requesting a correction, please mention this item's handle: RePEc:buc:jpredm:v:4:y:2010:i:2:p:45-64. 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)
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.