You assume limit orders are linear in dollars instead of shares. With CARA/normal and common volatility, limit orders are linear in shares and prices are beliefs weighted by reciprocal risk-aversion.
“there is a very liquid optionable US midcap which enables people to express the exact same view as a Kamala Yes contract with significantly superior payoff structures and tax consequences“
Paradoxically the surge of interest and depth of the markets can be bad for prediction accuracy. At the risk of using a tired analogy, only a fairly small number of traders and analysts were actively trading or covering Gamestop stock in January 2019. Two years later, both the absolute number of traders and volume had increased by orders of magnitude, but clearly the resulting "prediction" was not more correct as a result.
In a similar fashion, moving political prediction markets from a fairly niche interest of politics obsessives to the much wider world of crypto, where large positions, aggressive manipulation, and huge PnL swings are de rigeur, might change the accuracy from what it has been in previous cycles.
The intro implicitly claims that Harris has a >50% chance of winning, and is currently priced at 38, which puts the expected return of a Harris bet at (at least) 11,500% annualized, if I did the math right (= (50/38)^(52/3) - 1). I can buy that there are limits to arbitrage, but surely the limits to arbitrage aren't that big? Like it's plausible that a single whale could move the market that much, but surely you personally should be betting the other side?
You can't eat annualized returns, unless they had a new presidential election every 3 weeks for a year and the betting markets were similarly mispriced every time.
Per Polymarket's market depth calculator, it would only take a $3mm mkt buy of Harris to move the price back to 50/50, which isn't a tremendous amount of size to get a 25% price impact. You could sell $3mm of DJT equity for a 1-2% price impact, 20x lower.
So if you think the correct price is >50 and it takes $3M to move the price up to 50, why haven't you personally invested like $30K or $300K?
Edit: Like I know you said in the post that the reason you haven't invested is "limits to arbitrage" but I feel like you haven't adequately explained why you think those limits are prohibitive, and to my reckoning it looks like they aren't.
I don't have a strong ideological commitment to the price on Polymarket accurately reflect Kamala's chances. If this asset is mispriced, a natural question might be "what other financial assets are functions of the winner of the Presidental election, and are those assets mispriced in an even more egregious way?". The answer to that question is that there are, and that I have invested significantly more than $30k or $300k betting on *those*.
You assume limit orders are linear in dollars instead of shares. With CARA/normal and common volatility, limit orders are linear in shares and prices are beliefs weighted by reciprocal risk-aversion.
“there is a very liquid optionable US midcap which enables people to express the exact same view as a Kamala Yes contract with significantly superior payoff structures and tax consequences“
🤔🤔🤔🤔🤔
DJT isn’t real so can’t figure this one out 😔
How dare you enter my comments section and sully the name of beautiful, perfect BQNT. Begone, foul troll.
I am living in your walls plugged into your BBG tunnel to make you exceed your data limit
Sorry, I'm terribly ignorant re: footnote 1. What's the very liquid optional midcap you're referring to? Thanks!
Oh, I just finished reading the comments. DJT 😂
If this is all true then why do we see a good "track record" of these markets?
> https://electionbettingodds.com/TrackRecord.html
> There is also a decent correlation with other models (ie Nate Silver). and polls
Based on this doesn't it seem like by the time the election comes market prices are probabilities?
Paradoxically the surge of interest and depth of the markets can be bad for prediction accuracy. At the risk of using a tired analogy, only a fairly small number of traders and analysts were actively trading or covering Gamestop stock in January 2019. Two years later, both the absolute number of traders and volume had increased by orders of magnitude, but clearly the resulting "prediction" was not more correct as a result.
In a similar fashion, moving political prediction markets from a fairly niche interest of politics obsessives to the much wider world of crypto, where large positions, aggressive manipulation, and huge PnL swings are de rigeur, might change the accuracy from what it has been in previous cycles.
The intro implicitly claims that Harris has a >50% chance of winning, and is currently priced at 38, which puts the expected return of a Harris bet at (at least) 11,500% annualized, if I did the math right (= (50/38)^(52/3) - 1). I can buy that there are limits to arbitrage, but surely the limits to arbitrage aren't that big? Like it's plausible that a single whale could move the market that much, but surely you personally should be betting the other side?
You can't eat annualized returns, unless they had a new presidential election every 3 weeks for a year and the betting markets were similarly mispriced every time.
Per Polymarket's market depth calculator, it would only take a $3mm mkt buy of Harris to move the price back to 50/50, which isn't a tremendous amount of size to get a 25% price impact. You could sell $3mm of DJT equity for a 1-2% price impact, 20x lower.
So if you think the correct price is >50 and it takes $3M to move the price up to 50, why haven't you personally invested like $30K or $300K?
Edit: Like I know you said in the post that the reason you haven't invested is "limits to arbitrage" but I feel like you haven't adequately explained why you think those limits are prohibitive, and to my reckoning it looks like they aren't.
I don't have a strong ideological commitment to the price on Polymarket accurately reflect Kamala's chances. If this asset is mispriced, a natural question might be "what other financial assets are functions of the winner of the Presidental election, and are those assets mispriced in an even more egregious way?". The answer to that question is that there are, and that I have invested significantly more than $30k or $300k betting on *those*.
This was brilliant! Thank you!