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Arbitrage Trade In Prediction Markets

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Listed:
  • Ole Bergfjord
  • Petter Kildal
  • Thomas McPherson
  • Lars Loftaas
  • Kristoffer Valvik

Abstract

By using data from five similar prediction market (PM) contracts on the 2008 American presidential election in two different market places targeted at investors of different nationalities, we investigate whether arbitrage opportunities across borders and market places exist in these markets. We find that arbitrage opportunities are rare and difficult to exploit. Markets in these political events seem to be fairly efficient, even if they are located in different countries, time zones and are relatively small. However, inter-market arbitrage opportunities exist, and we hypothesize that this can be explained by differences in political opinion between the US and other countries.

Suggested Citation

  • Ole Bergfjord & Petter Kildal & Thomas McPherson & Lars Loftaas & Kristoffer Valvik, 2012. "Arbitrage Trade In Prediction Markets," Journal of Prediction Markets, University of Buckingham Press, vol. 6(3), pages 14-26.
    • Handle: RePEc:buc:jpredm:v:6:y:2012:i:3:p:14-26
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