Article ID: | iaor200969443 |
Country: | United Kingdom |
Volume: | 28 |
Issue: | 1 |
Start Page Number: | 55 |
End Page Number: | 72 |
Publication Date: | Jan 2009 |
Journal: | Journal of Forecasting |
Authors: | Skiera Bernd, Spann Martin |
Keywords: | forecasting: applications |
This article compares the forecast accuracy of different methods, namely prediction markets, tipsters and betting odds, and assesses the ability of prediction markets and tipsters to generate profits systematically in a betting market. We present the results of an empirical study that uses data from 678-837 games of three seasons of the German premier soccer league. Prediction markets and betting odds perform equally well in terms of forecasting accuracy, but both methods strongly outperform tipsters. A weighting-based combination of the forecasts of these methods leads to a slightly higher forecast accuracy, whereas a rule-based combination improves forecast accuracy substantially. However, none of the forecasts leads to systematic monetary gains in betting markets because of the high fees (25%) charged by the state-owned bookmaker in Germany. Lower fees (e.g., approximately 12% or 0%) would provide systematic profits if punters exploited the information from prediction markets and bet only on a selected number of games.