Even though many have said that the 25 basis point cut by the Fed this week increased the odds of a recession because it was not enough, prediction markets have indicated that odds remain the same. Currently, the Intrade contract is putting the odds of a recession (2 consecutive quarters of negative GDP growth) in 2008 at 45.5%. As shown in the historical chart below, the odds have actually been trending slightly lower since mid-November.
"Prediction markets have indicated that odds remain the same" ?? You're kidding, right?
Thinly traded illiquid markets have zero predictive value, as Yves Smith and others have pointed out ( http://www.nakedcapitalism.com/2007/02/shortcomings-of-prediction-markets-and.html ).
To see just how thinly traded this particular InTrade contract is, just click on the link you provided. As of December 15:
Today's volume: 12
Total volume (ever traded in the history of this contract): 1639
Bid:
45.1 (quantity = 1)
45.0 (quantity = 100)
44.1 (quantity = 5)
etc.
(total bid quantity = 137)
Ask:
49.6 (quantity = 12)
49.7 (quantity = 1)
52.0 (quantity = 20)
55.0 (quantity = 100)
etc.
(total ask quantity = 185)
I have a pretty strong opinion on whether there will be a recession in 2008. But why on earth would I bother signing up with Intrade for the privilege of waiting six months or more to win... what, exactly? Lunch money?
Posted by: Anonymous | December 15, 2007 at 03:31 PM