A Quasi‐Experimental Test of the Marginal Trader Hypothesis

Posted: 22 Oct 2011

See all articles by Calvin Blackwell

Calvin Blackwell

College of Charleston - School of Business

Date Written: November 2011

Abstract

Economists have tried to reconcile irrational individual‐level behavior with rational market behavior through the Marginal Trader Hypothesis (MTH), which posits that even when most traders act irrationally, a small group of well‐informed traders can keep an asset's market price equal to its fundamental value. I test the MTH by comparing predictions for the 2008 U.S. presidential election generated by the Iowa Electronic Markets to those of a prediction contest, a decision task that precludes marginal traders. The results do not support the MTH; I find that the forecasts generated by the prediction market and the prediction contest are equally accurate.

Suggested Citation

Blackwell, Calvin, A Quasi‐Experimental Test of the Marginal Trader Hypothesis (November 2011). Available at SSRN: https://ssrn.com/abstract=1947707 or http://dx.doi.org/10.1111/j.1467-6435.2011.00516.x

Calvin Blackwell (Contact Author)

College of Charleston - School of Business ( email )

Department of Economics
66 George Street
Charleston, SC 29424
United States
843-953-7836 (Phone)
843-953-5697 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
246
PlumX Metrics