A Prediction Market for Macro-Economic Variables

Abstract


Macro-economic forecasts are used extensively in
industry and government even though the historical
accuracy and reliability is disputed. Prediction
markets have proven to successfully forecast the
outcome of elections, sport events and product sales. In
this paper we provide a detailed analysis of forecasts
generated from a new prediction market for economic
derivatives. The proposed market design is specifically
designed to forecast macro-economic variables and
differs significantly from previous ones. It solves some
of the known problems such as low liquidity and
partition-dependence framing effects. By using finance
methodology we firstly show that the market is
reasonably liquid in order to continuously generate
forecasts. Secondly the market forecasts performed
well in comparison to the ‘Bloomberg’- survey
forecasts. Thirdly forecasts generated by the market
fulfill the weak-form forecast efficiency implying that
forecasts contained all publicly available information.

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