Sperb, Luis Felipe Costa, Sung, Ming-Chien, Johnson, Johnnie E.V. and Ma, Tiejun (2019) Keeping a weather eye on prediction markets: The influence of environmental conditions on forecasting accuracy. International Journal of Forecasting, 35 (1), 321-335. (doi:10.1016/j.ijforecast.2018.04.005).
Abstract
Increasingly, prediction markets are being embraced as a mechanism for eliciting and aggregating dispersed information and providing a means of deriving probabilistic forecasts of future uncertain events. The efficient market hypothesis postulates that prediction market prices should incorporate all information that is relevant to the performances of the contracts traded. This paper shows that such may not be the case in relation to information regarding environmental factors such as the weather and atmospheric conditions. In the context of horserace betting markets, we demonstrate that even after the effects of these factors on the contestants (horses and jockeys) have been discounted, the accuracy of the probabilities derived from market prices is affected systematically by the prevailing weather and atmospheric conditions. We show that significantly better forecasts can be derived from prediction markets if we correct for this phenomenon, and that these improvements have substantial economic value.
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- Faculties (pre 2018 reorg) > Faculty of Engineering and the Environment (pre 2018 reorg) > Southampton Marine & Maritime Institute (pre 2018 reorg)
- Current Faculties > Faculty of Social Sciences > Southampton Business School > Decision Analytics and Risk
Southampton Business School > Decision Analytics and Risk - Faculties (pre 2018 reorg) > Faculty of Business, Law and Art (pre 2018 reorg) > Southampton Business School (pre 2018 reorg)
Current Faculties > Faculty of Social Sciences > Southampton Business School > Southampton Business School (pre 2018 reorg)
Southampton Business School > Southampton Business School (pre 2018 reorg)
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