Kalshi rivals professional forecasters in prediction accuracy

Kalshi predictions are close in their accuracy to professional forecasts, according to a recent paper by the Federal Reserve. The release arrives after signs of manipulation on some markets, while other prediction pairs had high accuracy. 

Prediction markets on Kalshi may be as accurate as the opinions of professional forecasters, revealed a recent paper in the Finance and Economics Discussion Series of the US Federal Reserve. 

The paper is meant to raise a discussion, and is not conclusive, but it offers a glimpse of the accuracy of prediction pairs when left to the organic opinions of traders. 

The authors compared the market-implied forecasts of Kalshi with more traditional methods like surveys and market-implied forecasts. Kalshi was able to approximate the expectations based on macroeconomic analysis, financial news, and policy signals, offering a continuously updated distribution of risk in real time. 

Kalshi delivers real-time data with high accuracy

Since markets move on expectations and interpretation, Kalshi and prediction markets are tools to directly gauge sentiment. Surveys, while thorough and formal, can become outdated by the time of their release, and are at best a lagging indicator. Some market-based analysis may take into account outliers and relatively illiquid markets. 

“For the federal funds rate forecasts 150 days (3 FOMC meetings) ahead, Kalshi’s mean absolute error is very similar to that of professional forecasters. But unlike the survey—which provides a snapshot every six weeks of a modal path—Kalshi offers a continuously updating full distribution,” discovered the researchers.

Kalshi was also one of the first markets liquid enough to offer relevant, statistically normal information. While Polymarket was not mentioned in the survey, its market depth was similar for some of the key markets. 

For instance, on Polymarket, the market for Fed decisions has a volume of $138M, or $4M daily. On Kalshi, the market’s volume is around $10M, though it may be accurate at this level of activity. The Kalshi platform dominated the Super Bowl predictions and retains high-liquidity markets. 

Kalshi has the advantage of full regulatory approval

According to the paper authors, Kalshi and Interactive Brokers have the advantage of regulatory approval, while Polymarket is still in a legal gray area. The paper is based on Kalshi data, as it is seen to be the more mature market. 

Kalshi is regulated under the Commodities Futures Trading Commission (CFTC), while Polymarket is still seeking the framework to expand its US-based operations.

Polymarket has increased its activity based on niche and diverse markets, often handling low-volume predictions. In the past month, Polymarket volumes have been challenged by Kalshi and Opinion. Despite this, Polymarket draws in the highest number of active users based on wallet engagement.

Some of the markets have been manipulated due to incentives like liquidity rewards or the launching of derivative trading pairs. Other attempts at scamming include the ongoing social media calls to copy-trade specific Polymarket wallets. 

Polymarket has also switched to short-term predictions, with significant volumes coming from its 15-minute and 5-minute BTC pairs. 

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