

Trading Strategies and Market Microstructure: Evidence from a Prediction Market - aprescott
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2322420

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aprescott
Part of the reason this is interesting is the possibly intentional inflation
of Romney's odds (from the paper) for non-monetary gain. Indeed, losing 4
million dollars:

 _It does appear, however, that price manipulation by a single trader who
accumulated a large directional position on Romney may have been a factor.
This trader accounted for one-third of all bets placed on Romney during our
observational window, and lost almost four million dollars in the process.
This position was accumulated by placing large bids for Romney and large o
ffers for Obama that eff ectively created a firewall, preventing prices from
moving in response to incoming information. This resulted in remarkable
stability in Intrade prices for several hours on Election Day, and at other
critical moments of the campaign, even as prices on Betfair were moving
sharply. On Election Day, these orders were removed just as voting ended in
Colorado, the last swing state to close its polls. The e ect was a sharp price
movement and immediate convergence to the Betfair odds. Financial gain though
correlated changes in stock prices seems an unlikely motivation for this
activity, since these correlations appear to have broken down in 2012. More
plausibly, this trader could have been attempting to manipulate beliefs about
the odds of victory in an attempt to boost fundraising, campaign morale, and
turnout._

And the biased vs unbiased numbers:

 _Manipulation aside, one of our most striking findings is that 86% of
traders, accounting for 52% of volume, never change the direction of their
exposure even once. A further 25% of volume comes from 8% of traders who are
strongly biased in one direction or the other. A handful of arbitrageurs
account for another 14% of volume, leaving just 6% of accounts and 8% of
volume associated with individuals who are unbiased in the sense that they are
willing to take directional positions on either side of the market. This
suggests that information fi nds its way into prices largely through the
activities of traders who are biased in one direction or another, and diff er
not only with respect to their private information but also with respect to
their interpretations of public information._

