Prediction Markets' Wall Street Push May Make Profits Harder for Traders

According to CNBC, an academic working paper analyzing $13.76 billion of Polymarket trades found that about 27% of dollar profits went to just 3% of accounts identified as persistently skilled. The paper said those traders made money by reacting faster to public news, arbitraging inconsistent pricing across related contracts and trading against behavioral mistakes, while Yale economist Theis Jensen said more skilled participants would make prices more accurate and reduce mispricing opportunities. Bank of America equity research analyst Julie Hoover said tighter spreads and more efficient markets would make it harder to find arbitrage opportunities, though she said smaller skilled traders could still have an edge in niche markets. Jensen said the share of traders with an edge could fall from 3% to below 1%, while he also said prediction markets could become more of a fair gamble for participants without a persistent edge. The article said greater institutional trading volume could expand fee opportunities for platforms and improve the appeal of event contracts as hedging, forecasting and market-data tools.