Journal of Electoral Studies

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Home Issues Backissues Volume 31, No.2 The Price Formation in Election Gambles

The Price Formation in Election Gambles

An-Lin Chen, Lan-Feng Kao, and Hui-Wen Tang
2006 / 11
Volume 13, No.2

pp.145-165
10.6612/tjes.2006.13.02.145-166

Abstract

Under the efficient markets hypothesis, the market price should be able to reflect all the information in the markets. In this paper, we further confirm the validity of efficient markets hypothesis by showing that the election gamble price or the price of the political security can effectively predict the election outcomes. Even though the election stock market can predict the election very precisely, there still exists arbitrage opportunity in the election stock markets. The wish-fulfillment phenomenon causes the traders to buy their favor candidates leading to bias of the market price. However, the marginal traders usually trade without wish-fulfillment bias to facilitate the efficiency of the market price.

Keywords

efficient markets hypothesis

election gamble

election stock market

marginal trader

political security