Analysis of Trading Duration in Pari-Mutuel Prediction Markets

Pari-mutuel prediction markets are the markets where participants, based on their beliefs, buy contracts that have payoffs depending on a correct prediction of the future outcome. Implementing pari-mutuel prediction markets offers simplicity and liquidity guarantee. However, an appropriate trading duration is difficult to determine. While longer trading period allows participants to learn from the markets, it is also wasteful and may not be feasible. This paper studies the relationship between the trading duration and the prediction accuracy. Forty-three markets regarding sports and movies have been implemented and analyzed. The results show that pari-mutuel prediction markets already yield sufficient prediction insights after the markets are opened for shorter than five days, and the opening duration after that point does not significantly change the predicting result.