DavidMRothschild on April 11, 2011 @ 4:44PM
Let me pose a question that address in further as this blog progresses: What is the appropriate level of volatility in an efficient forecast? Here is the forecast of the World Series winner for the three most probable teams: Phillies, Yankees, and Red Sox, based on BetFair prices. The probabilities cover the first week and a half of the season. Useful volatility represents new and meaningful information, un-useful volatility is just random movement. While the starting pitching has been a little less than amazing, the Phillies (7-2) are basically achieving at expectation and their probability remains essentially flat. Having to make the playoffs and then win three rounds, it is essentially impossible for them to move much beyond 25% this early in the season, even if they win every game. The Yankees (5-4), just dropped 2 of 3 from the Red Sox (2-7), but remain slightly up and the Red Sox slightly down from the start of the season. Does it seem reasonable that the Red Sex have a 13% of winning the World Series? Does going 0-6 in a 162 game season mean they are 25% less likely to win or does it provide minimal new information? The Yankees are clearly moving upward in because of the probability of making the playoffs the AL East winner increases their chances of doing well in the playoffs, but is that putting too much weight on the first step? These are questions I will address in later posts ...
DavidMRothschild on April 08, 2011 @ 5:58PM
The table is now not as useful as a chart of the evening. The deal was struck at 10:30 PM and the probability derived from Intrade's prices moved just as the deal was being announced. That being said, it was generally moving in that direction as some information was dispersed. At 10:30 PM HuffingtonPost and others were still giving very neutral headlines, while Intrade was in its steady march downward towards no shutdown.
Watch this number as we approach midnight! It is currently at 55% with 6 hours to go ...
DavidMRothschild on March 31, 2011 @ 1:48PM
My local NBA team has left us, so I do not follow basketball as closely as I did in the past, but it is hard not be interested this year. The Heat are a huge news story and the playoffs will generate a buzz not felt in years. Below is the chart of how of the price of $1 contract on the Heat winning the NBA championship and, for comparison, the Lakers are on the chart as well. The first thing to notice is how dramatically high the price was for the Heat in the early part of the season and how far it has fallen. The second thing to notice is that it has actually fallen well below the Lakers as the season nears its end.
Below is a second chart, that shows the next three most probable teams. First, look at the two West teams, notice how they mirror each other (the Mavs, not shown, have held steady at a very consistent $0.04 to $0.05). Second, compare the Celtics and the Heat early in the season and the Bulls and the Heat late in the season and you can see that the two teams mirrored each other for parts of the season, while the third team was relatively stable.Yet, despite the that mirroring, the sum of West teams (Lakers, Spurs, Mavs, and Thunder) has been moving slowly upward and the East teams (Heat, Bulls, Celtics, and Magic) has been moving slowly downward.
What this all means is that the market is now assuming that winning the championship, once your team gets there, is basically a toss-up, while midseason the East champion was much more likely to win the finals. Still, the main driver of the indivdual team prices are a reflection of their relative strength within the conference ... right now the Lakers are looking so strong, not because they are necessarily any better than the Heat, but they have a much easier path the NBA finals.
DavidMRothschild on March 31, 2011 @ 12:55PM
The dotted line you see here represents the exact point in time that the UN passed its resolution for a no-fly zone over Libya. The interesting thing about this line is that the price for a contract on Gaddafi not being in power past the end of the year reached a local peak as it passed, not after. The reason is that Intrade did a good job here incorporating the information about the UN and the actual passage became a fete-de-complete. More important, the price has been impressively stable even as events swirl back and forth on the ground in Libya. The contract is for the end of the year and I take the stability as a sign of a mature and liquid market, where Intrade had, in the past, had issues with dramatic volatility in similar situations ... Finally, what most people really care about, I would translate the current price (at 1:00 PM EST on Thursday, March 31) into a probablity of 85% that Gaddafi does not make it into the New Year as the ruler of Libya.
DavidMRothschild on January 11, 2011 @ 1:34PM
Immediately in the aftermath of Saturday's assassination attempt on Congresswoman Gifford, that resulted in the death of six people including a federal judge and a nine year old girl, the media began speculating on the political fallout to Sarah Palin's 2012 Presidential aspirations. In March she had put out an advertisement with a target on Congresswoman Gifford and then told asked that her followers "Don't Retreat, Instead - RELOAD!" Thus, after the massacre people began to discuss her contribution to both the specific target and the general heated atmosphere in politics; regardless of her complicity, and thus far there is no direct evidence the assassin followed Mrs. Palin, talk of it has political consequences. As several blogs have already noted, the market for her 2012 Republican nomination responded immediately ... on Intrade. She lost over 1/3 of her probability in the immediate aftermath of the massacre. Yet, the movement a different market, Betfair, was much smaller, as it was already trading lower for Mrs. Palin; Betfair has consistently had less confidence in Mrs. Palin's viability as the Republican nominee. The chart is below: