Open Access Te Herenga Waka-Victoria University of Wellington
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A study of efficiency in New Zealand election prediction markers

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posted on 2021-11-15, 07:40 authored by Cao, Tram P.

The development of prediction markets has naturally given rise to studies of their efficiency. Most studies of efficiency in prediction markets have focused on the speed with which they incorporate information. A necessary (but not sufficient) condition of efficiency is that arbitrage opportunities must non-existent or transitory in nature so that the systematic generation of abnormal profits is not possible. Using data from New Zealand’s first prediction market, iPredict, I examine the potential for arbitrage in the contracts for the party vote for the 2011 General Election. Relative to the risk-free interest rate, the returns from arbitrage are generally low, consistent with an efficient market. Regression analysis requires that the data not be subject to the possibility of spurious regressions - something that is not addressed in the literature. After confirming the non-stationarity of the price level and the stationarity of the price changes by the unit root test, I use the iPredict data in conjunction with opinion poll data to test whether the polls impact on market pricing behaviour. Using a number of different model types, I find that the opinion poll data has a very limited impact on market prices, suggesting that the information contained in the poll is largely already incorporated into market prices.

History

Copyright Date

2015-01-01

Date of Award

2015-01-01

Publisher

Te Herenga Waka—Victoria University of Wellington

Rights License

Author Retains Copyright

Degree Discipline

Finance

Degree Grantor

Te Herenga Waka—Victoria University of Wellington

Degree Level

Masters

Degree Name

Master of Commerce

ANZSRC Type Of Activity code

970115 Expanding Knowledge in Commerce, Management, Tourism and Services

Victoria University of Wellington Item Type

Awarded Research Masters Thesis

Language

en_NZ

Victoria University of Wellington School

School of Economics and Finance

Advisors

Evans, Lew; Hyslop, Dean; Randal, John