Salience and the disposition effect: Evidence from the introduction of "Cash-Outs" in betting markets

The disposition effect describes the tendency of investors to sell assets that have increased in value since purchase, and hold those that have not. We analyse the introduction of betting market ‘Cash-Outs’, which provide a continual update – and therefore increase the salience – of bettors’ paper profits/losses on each bet. We find that the introduction of Cash-Out increased the disposition effect in this market, as punters sold their profitable bets with greater frequency than before. We do not, however, find that the disposition effect has any impact on asset prices, either before or after this intervention

Forecasting Elections

In this paper we assess polls and prediction markets over a large number of US elections in order to determine which perform better in terms of forecasting outcomes. We consider accuracy, bias and decidedness over different time horizons before an election, and we conclude that prediction markets appear to outperform polls in terms of accuracy, unbiasedness and decidedness. We thus contribute to the growing literature comparing election forecasts of polls and prediction markets

Margin Changes and Futures Trading Activity: a New Approach

In this paper we examine the impact of margins, adjusted for underlying price risk proxied by market volatility, on trading volume and incorporate the relationship between trading volume and price volatility documented in stock markets. We estimate a bivariate GARCH-M model to take account of the inter-relationships and apply them to the Greek derivatives market over the period 1999–2005. The results show that when adjusting margins for market risk there is no impact on trading volume, casting doubts on the results of previous research, and providing support for the view that margin requirements are used only as a mechanism to prevent trader default

Returns to individual traders of futures : aggregate results

http://deepblue.lib.umich.edu/bitstream/2027.42/35686/2/b140863x.0001.001.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/35686/1/b140863x.0001.001.tx

Returns to Individual Traders of Futures: Aggregate Results.

By means of a data set previously unavailable for academic research, actual trading histories of individual futures traders are examined. With this more detailed data, the author is able to (1) test the risk/return hypothesis directly; (2) include a much larger segment of the market than before; and (3) use actual instead of hypothetical t rading strategies. It is shown that the commercial (hedging) traders are most profitable, while noncommercial (speculative) traders earn n egative or zero profits. Because speculators are not receiving reward s for the risks they willingly absorb, the theory of normal backwarda tion and its extension can be rejected. Copyright 1987 by University of Chicago Press.