Political stock markets (PSMs) are an interdisciplinary ...
Published on: Mar 4, 2016
Transcripts - Political stock markets (PSMs) are an interdisciplinary ...
Systematic mispricing in experimental markets – evidence
from political stock markets
Florian Hauser / Juergen Huber
Department of corporate finance,
University of Innsbruck,
Political stock markets (PSMs) are an interdisciplinary
instrument of opinion research intended to forecast election
results. While the U.S.-markets regularly outperform opinion
polls, these results could not be reproduced in Europe. In our
paper we show, that this is mainly due to systematic
overpricing of smaller contracts, which usually do not exist in
the U.S. The mispricing is caused by the market design,
namely the fact, that the contracts traded in PSMs are
effectively futures, while the market mechanism is a stock
market design. Results from models deriving portfolio
structure and concentration of investment are confirmed by
empirical data from PSMs.