TY  - JOUR
AU  - Snowberg,Erik
AU  - Wolfers,Justin
AU  - Zitzewitz,Eric
TI  - How Prediction Markets Can Save Event Studies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16949
PY  - 2011
Y2  - April 2011
UR  - http://www.nber.org/papers/w16949
L1  - http://www.nber.org/papers/w16949.pdf
N1  - Author contact info:
Erik Snowberg
Division of Humanities and Social Sciences
MC 228-77
California Institute of Technology
Pasadena, CA 91125
Tel: 626/395-4094
E-Mail: snowberg@caltech.edu

Justin Wolfers
Department of Economics
University of Michigan
611 Tappan St
Lorch Hall #319
Ann Arbor, MI 48104
Tel: 734-764-2447
E-Mail: jwolfers@umich.edu

Eric Zitzewitz
Department of Economics
Dartmouth College
6106 Rockefeller Hall
Hanover, NH 03755
Tel: 603/646-2891
Fax: 603/646-2122
E-Mail: eric.zitzewitz@dartmouth.edu
AB  - This review paper articulates the relationship between prediction market data and event studies, with a special focus on applications in political economy. Event studies have been used to address a variety of political economy questions from the economic effects of party control of government to the importance of complex rules in congressional committees. However, the results of event studies are notoriously sensitive to both choices made by researchers and external events. Specifically, event studies will generally produce different results depending on three interrelated things: which event window is chosen, the prior probability assigned to an event at the beginning of the event window, and the presence or absence of other events during the event window. In this paper we show how each of these may bias the results of event studies, and how prediction markets can mitigate these biases.
ER  -