Monthly Archives: December 2007

Do you see a sixth dimension to the prediction markets?

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Midas Oracle is about the event derivative markets and:

  1. their profit opportunities (sought by the traders)-
  2. their predictive power (investigated by the economists)-
  3. their entertainment ability (delivered by the play-money prediction markets)-
  4. their hedging utility (employed by the risk managers and monitored by the CFTC)-
  5. their decision-making capacity (alleged by Robin Hanson).

E-mail me or leave a comment below.

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UPDATE: Xpree&#8217-s Mat Fogarty&#8230-

their training / motivational ability (corporations like their employees to be engaged and knowledgeable about key metrics – PMs reward this process)

Reading the Markets – Forecasting Prediction Markets By News Content Analysis

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Reading the Markets – Forecasting Prediction Markets By News Content Analysis – (PDF file) – by Ari Gilder and Kevin Lerman – 2007-xx-xx

Abstract

We present a system for predicting price fluctuations in Prediction Markets, such as TradeSports and the Iowa Electronic Markets. Our approach utilizes both market history and public news articles, published before the beginning of trading each day, to produce a set of recommended investment actions. Since there is evidence that prediction markets are very good indicators of future events, we hypothesize that the converse is true: past/present events can potentially assist in predicting future prices in these markets. We empirically show that these markets are surprisingly predictable, even by purely market-historical techniques. Furthermore, analyzing relevant news articles captures information independent of the market’s history, and combining the two methods significantly improves results. Capturing this signal from news articles requires some linguistic sophistication – the standard naive bag-of-words approach does not yield predictive features. Instead, we use part-of-speech tagging, dependency parsing and semantic role labeling to generate features that improve system accuracy.

We evaluate our system on eight political markets from 2004 and show that we can make effective investment decisions based on our system’s predictions, whose profits greatly exceed those generated by a baseline system. Additionally, our market prediction system can be applied to any Prediction Market with a known end date and for which a set of relevant entities (people, places, or things) can be defined.

Previously: Today&#8217-s prediction markets are far from being efficient.

Author Profile&nbsp-Editor and Publisher of Midas Oracle .ORG .NET .COM &#8212- Chris Masse&#8217-s mugshot &#8212- Contact Chris Masse &#8212- Chris Masse&#8217-s LinkedIn profile &#8212- Chris Masse&#8217-s FaceBook profile &#8212- Chris Masse&#8217-s Google profile &#8212- Sophia-Antipolis, France, E.U. Read more from this author&#8230-

Read the previous blog posts by Chris. F. Masse:

  • Car manufacturer Renault (Nissan’s twin) is now a NewsFutures client.
  • Nokia’s Enterprise Prediction Markets = Competitive Advantage
  • Comments are now completely open on Midas Oracle.
  • Albert Einstein, Chairman of the Midas Oracle Advisory Board
  • Erratic –but not Stochastic– Charts
  • Barack Obama is the 44th US president.
  • We already have prediction markets in future tax rates. It’s called the municipal bond yield curve.

MENTAL HEALTH EXPERTS: INKLING HOBBY IS GOOD FOR ENERGY ECONOMIST MICHAEL GIBERSON.

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The New York Times:

Carol Kauffman, an assistant clinical professor at Harvard Medical School: &#8220-When you’re really engaged in a hobby you love, you lose your sense of time and enter what’s called a flow state, and that restores your mind and energy.&#8221- [&#8230-] &#8220-That positive emotion builds your cognitive and social skills. If you follow your bliss [*] for a little while, it really gives you a surge of energy.&#8221-

Dr. Gabriela Cora, a psychiatrist who is managing partner of the Florida Neuroscience Center and president of Executive Health and Wealth Institute: &#8220-Making time for enjoyable activities stimulates parts of the brain associated with creative and positive thinking. You become emotionally and intellectually more motivated.&#8221-

Gail McMeekin, a psychotherapist and owner of Creative Success: &#8220-Any time you take a break from routine, you develop new ways of thinking&#8221-.[&#8230-] &#8220-You have to do some market research first and make sure you could earn a living doing your hobby. You also take the risk that making your hobby your career [*] will take all the fun out of it.&#8221-

[*] His &#8220-bliss&#8221- right now is to chronicle the Writers Guild America&#8217-s 2007 strike on Inkling Markets and Midas Oracle .COM.

[**] Told him 10 times!!!!!!!

Michael Giberson

RECOMMENDED READING: RGGI auction design flaw: Separate sealed-bid auctions for substitute goods poses needless risks for bidders – by Michael Giberson (at Knowledge Problem)

&#8220-RGGI&#8221- is short for the Regional Greenhouse Gas Initiative (North East and Mid-Atlantic). They want to create a multi-state cap-and-trade program with a market-based emissions trading system. Economist Michael Giberson has found [links to Crampton&#8217-s paper that highlights] &#8220-one serious flaw that threatens the efficiency of the auction: they proposed to auction two goods which are asymmetric substitutes in separate, simultaneous sealed bid auctions.&#8221-

Mike, are there lessons here to learn when it comes to prediction market designs?

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Psstt&#8230- The best sentence that Mike has ever told me is this one (from memory):

Maybe there&#8217-s a method in your madness.

:-D

Read the previous blog posts by Chris. F. Masse:

  • Hot-Linking InTrade’s Advanced Charts
  • Prediction Markets on FaceBook
  • BetFair SP = BetFair Starting Price
  • Gary Flake to David Pennock: Come on board… or die.
  • Technology Futurism
  • Trade on BetFair-TradeFair as you would trade on TradeSports-InTrade, thanks to order-entry software BinarySoft.
  • Pervez Musharraf prediction markets –Eric Zitzewitz Edition

Risk premia creeping higher

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Since Halloween, financial markets seem to be getting spooked again.

Larry Kudlow writes:

Until recently, I thought the Fed could stand pat at their December 11th meeting. However, I have completely changed my mind in light of the continuing credit market turbulence.

Kudlow notes that the spread between 30-day asset-backed commercial paper and U.S. Treasuries, which spiked up dramatically after August&#8217-s liquidity events but subsequently eased back down, climbed back up during November to the neighborhood of its previous high.

abcp_dec_07.png

The same is true of the spread between the London interbank offered rate and Treasuries.

libor_dec_07.png

One of the features of the initial financial turmoil on which I commented last August is that it seemed to be confined specifically to the financing of problematic securities, but was not showing up as a broader risk premium in something like the spread between Baa-rated corporate bonds and 10-year Treasuries. But the latter spread has made a significant move up over the last month, and now stands 80 basis points higher than in July.

baa_daily_dec_07.gif

A sharp upward move in the Baa-Treasury spread is often associated with the early stages of an economic downturn, as the following longer-term perspective using monthly data illustrates:

baa_monthly_dec_07.gif

For what it&#8217-s worth, bettors at Intrade also seem to believe that the risk of a U.S. recession during 2008 has crept up since mid-October.

intrade_recession_dec_07.png

Cross-posted from Econbrowser.