The Australian Financial Review recently explored whether prediction markets like Polymarket can outperform traditional equity research during earnings season. The article examined how prediction markets correctly forecast 68 per cent of earnings announcements a week ahead and 77 per cent the day before, compared to analysts' 62 per cent accuracy rate.
Our portfolio manager, Thomas Rice, shared his perspective on this emerging tool. Whilst acknowledging he planned to explore the utility of prediction markets, Rice highlighted concerns about market integrity:
"Markets should be pretty efficient with pricing public information, so I imagine to the extent there's information value in prediction markets, it's likely because private information is leaking there."
Rice also noted that if enough investors used the platforms as a signal, punters could potentially flood them to manipulate a stock's earnings expectations. The study by London Business School and Yale University revealed that prediction markets' major advantages include real-time updates, no conflicts of interest, and punters having skin in the game. However, liquidity remains thin, with bets averaging $US23,000 per company. To read the article, click the link below.