The Signal Credibility Index for Prediction Markets: A Microstructure-Grounded Diagnostic with Weighted and Time-Varying Extensions
Telling real market signals from trading noise and manipulation
Prediction markets move for many reasons — genuine new information, temporary trading pressure, large traders repositioning, or coordinated manipulation — but their prices treat all these moves as equivalent. This paper develops a diagnostic tool that distinguishes between them, identifying which price moves reflect durable market insights and which are fleeting or deceptive.
Prediction markets are used to forecast election outcomes, pandemic severity, and tech breakthroughs — decisions that depend on whether price movements mean something real. If traders or manipulators can make prices move without providing genuine information, the market becomes less reliable for forecasting. This index makes it possible to flag when a price move might be noise or manipulation rather than actual wisdom.