Abstract
We propose the use of copula methods to recover the dependence structure between prediction markets. Copula methods are flexible tools to measure associations among probabilities because they encompass both linear and non linear relationship among variables. We apply the proposed methodology to three actual prediction markets, the Saddam Security, the market of oil spot prices and the Saddameter. We find that the Saddam Security is nearly independent of the oil market, while being highly correlated to the Saddameter. The results obtained appear to suggest that the Saddam Security prediction market may be noisy or overlooking some political factors which are instead considered by Saddameter and the oil market.
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© 2009 ICST Institute for Computer Science, Social Informatics and Telecommunications Engineering
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Capponi, A., Cherubini, U. (2009). A Copula Function Approach to Infer Correlation in Prediction Markets. In: Das, S., Ostrovsky, M., Pennock, D., Szymanksi, B. (eds) Auctions, Market Mechanisms and Their Applications. AMMA 2009. Lecture Notes of the Institute for Computer Sciences, Social Informatics and Telecommunications Engineering, vol 14. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-03821-1_3
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DOI: https://doi.org/10.1007/978-3-642-03821-1_3
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