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Measuring Trade Direction in a Prediction Market: Settlement Ground Truth and Trading-Cost Measurement on Polymarket

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  • Philipp D. Dubach

Abstract

Trade-sign errors can change measured trading costs even when classification accuracy is high. We validate the side of Polymarket's public trade prints against the taker leg of each print's on-chain settlement. On twelve selected days between April and August 2026, spanning both exchange generations, 92.1% to 100.0% of prints match a settled taker leg, with exact side and token agreement on all 24.5 million matched pairs. Mint-and-merge settlement makes that taker leg essential: pooling maker and taker legs changes the measured buy share. Signing the full cached tape before settlement selection yields 16.6 million prints signed by every rule; equal-day balanced accuracy is 0.942 for Lee-Ready, 0.768 for the tick test and 0.670 for retrospective bulk volume classification. On 16.4 million identical eligible fills, Lee-Ready raises effective spread by 0.429 cents per share under equal-fill weights; its realised-spread difference is -0.209 cents. Under share-volume weights, taker five-minute midpoint impact is 0.689 cents, while tick and bulk classifications give -0.374 and -0.119 cents. That aggregate sign reversal disappears when tied print rows are excluded. Distortion depends on error-weighted signed outcomes, sample selection and weighting. Receipt-time ordering and unobserved future-quote age limit these delivered-quote accounting quantities; they do not identify causal impact or private information. Supporting venue and collector analyses provide descriptive diagnostics.

Suggested Citation

  • Philipp D. Dubach, 2026. "Measuring Trade Direction in a Prediction Market: Settlement Ground Truth and Trading-Cost Measurement on Polymarket," Papers 2610.06412, arXiv.org.
    • Handle: RePEc:arx:papers:2610.06412
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    References listed on IDEAS

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    1. Philipp D. Dubach, 2026. "Measuring Trade Direction in a Prediction Market: Settlement Ground Truth and Trading-Cost Measurement on Polymarket," Papers 2610.06412, arXiv.org.

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