How Prediction Markets Can Save Event Studies

27 Pages Posted: 18 Apr 2011

See all articles by Erik C. Snowberg

Erik C. Snowberg

Independent

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Eric Zitzewitz

Dartmouth College; NBER

Abstract

This review paper articulates the relationship between prediction market data and event studies, with a special focus on applications in political economy. Event studies have been used to address a variety of political economy questions οΎ– from the economic effects of party control of government to the importance of complex rules in congressional committees. However, the results of event studies are notoriously sensitive to both choices made by researchers and external events. Specifically, event studies will generally produce different results depending on three interrelated things: which event window is chosen, the prior probability assigned to an event at the beginning of the event window, and the presence or absence of other events during the event window. In this paper we show how each of these may bias the results of event studies, and how prediction markets can mitigate these biases.

Keywords: prediction markets, event studies, political economy

JEL Classification: A2, C58, D72, H50, G14

Suggested Citation

Snowberg, Erik C. and Wolfers, Justin and Zitzewitz, Eric W., How Prediction Markets Can Save Event Studies. IZA Discussion Paper No. 5640, Available at SSRN: https://ssrn.com/abstract=1812525

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-2447 (Phone)

HOME PAGE: http://www.nber.org/~jwolfers

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States
734-615-6846 (Phone)

HOME PAGE: http://www.nber.org/~jwolfers

The University of Sydney - Discipline of Economics ( email )

P.O. Box H58
Australia Square
Sydney, NSW 2006
Australia

Brookings Institution - Economic Studies Program ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://www.nber.org/~jwolfers

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/~jwolfers

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=1737

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=157943

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Eric W. Zitzewitz

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-2891 (Phone)
603-646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~ericz

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
797
PlumX Metrics