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Figure 3 shows the expected market capitalization according to the distribution estimated from

the WTA prices each day. Figure 3 also includes the predicted market capitalization from the linear

market for comparison. The forecasts from the WTA market follow the linear market forecasts quite

closely. Their correlation is 0.71. The WTA low forecast was $23.2 billion and the high was $36.5

billion (compared to $24.8 billion and $37.5 billion from the linear market). On August 18 (the day of

the final S-1 approval), several WTA contract prices fell to zero, which made identification of the two

parameters imprecise without finer contract intervals (i.e., we cannot estimate the parameters precisely

when all or nearly all of the forecast distribution lies in one interval). However, from August 11 through

August 17, the estimates of market capitalization fell between $28.2 and $28.9 billion and closed at $28.3

billion on August 17.

While volumes differ considerably, forecast market capitalizations are similar across the two IEM

prediction markets at any point in time. They are highly correlated even though the different contract

structures and thin trading in the linear market make inter-market arbitrage difficult at best. A similar

analysis of data from the 2004 WTA Presidential Election markets on the IEM shows a similar inter-

market pattern. The election market analysis suggests that, while forecasts are similar, those derived from

WTA markets may be more stable than those derived from the linear (vote share) markets. This evidence,

combined with the higher volumes in the WTA market, leads us to have more confidence in the estimates

from the Google WTA market predictions, so we will focus on the WTA predictions through the rest of

the paper.

As Figure 3 shows, the predictions were remarkably accurate. Inaccurate early predictions would

not be surprising. As noted above, there was no information about quantities of shares and price ranges in

early versions of the prospectus. Even though all such information is known at the time when-issued

markets open, Löffler, Panther and Theissen (2002) document that when-issued markets are only

informative in the last few days of trading. Nevertheless, from July 8 (the first day after which all

contracts had traded) through July 25 (the day before the filing of Amendment 4, which contained the first

estimates of share quantities and price ranges), the forecasted market capitalization from the WTA market


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