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A Quasi‐Experimental Test of the Marginal Trader Hypothesis
Author(s) -
Blackwell Calvin
Publication year - 2011
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.2011.00516.x
Subject(s) - contest , economics , irrational number , asset (computer security) , value (mathematics) , test (biology) , efficient market hypothesis , financial economics , econometrics , microeconomics , statistics , computer science , political science , mathematics , paleontology , geometry , computer security , horse , stock market , law , biology
Summary Economists have tried to reconcile irrational individual‐level behavior with rational market behavior through the M arginal T rader H ypothesis ( MTH ), which posits that even when most traders act irrationally, a small group of well‐informed traders can keep an asset's market price equal to its fundamental value. I test the MTH by comparing predictions for the 2008 U . S . presidential election generated by the I owa E lectronic M arkets to those of a prediction contest, a decision task that precludes marginal traders. The results do not support the MTH ; I find that the forecasts generated by the prediction market and the prediction contest are equally accurate.