(In)Accuracy of a European Political Stock Market: The Influence of Common Value Structures

Posted: 25 Sep 2007

See all articles by Ben Jacobsen

Ben Jacobsen

Tilburg University - TIAS School for Business and Society; Massey University

Johannes (Jan) J. M. Potters

Tilburg University - CentER

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

F. A. A. M. Van Winden

University of Amsterdam - Amsterdam School of Economics (ASE); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Jörgen Wit

affiliation not provided to SSRN

Abstract

This paper presents the results of a political stock market in the Netherlands: PAM94. The exchange covered three consecutive elections, allowing trade on five different markets. The predictions at PAM94 appear to be less accurate than those of previous markets of comparable size. Of the possible explanations that we examine, one in particular survives closer scrutiny. It concerns a type of judgement failure related to the winner's curse in common value auctions. Theoretical as well as empirical support is offered. Apart from qualifying the attractiveness of such markets as an alternative for opinion polls, this explanation may also be relevant for the analysis of other asset markets. Moreover, this judgement failure may be more important for European political stock markets than for the U.S., because the structure of the common values (vote shares) at multiparty elections make them especially vulnerable to it.

Keywords: Political stock market, Common value, Proportional representation, Market efficiency

JEL Classification: C93, D82, G1

Suggested Citation

Jacobsen, Ben and Potters, Johannes (Jan) J. M. and Schram, Arthur J. H. C. and Van Winden, F. A. A. M. and Wit, Jörgen, (In)Accuracy of a European Political Stock Market: The Influence of Common Value Structures. European Economic Review, Vol. 44, 2000. Available at SSRN: https://ssrn.com/abstract=1016676

Ben Jacobsen (Contact Author)

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Massey University ( email )

Auckland
New Zealand

Johannes (Jan) J. M. Potters

Tilburg University - CentER ( email )

Department of Economics
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 8204 (Phone)
+31 13 466 3042 (Fax)

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 18
CREED
Amsterdam 1018 WB
Netherlands
+31 (0)20 525 4293 (Phone)

HOME PAGE: http://www.fee.uva.nl/creed/PEOPLE/Arthurs.htm

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

F. A. A. M. Van Winden

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Jörgen Wit

affiliation not provided to SSRN ( email )

No Address Available

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