The forecasting ability of Internet-based virtual futures market

Internet-based virtual futures markets (VFMs) have been used in predicting election results and movie ticket sales. We construct an Internet-based VFM to predict an underlying stock price. Results of Granger causality tests and tests of directional accuracy show that a VFM with only a small number of participants (75) is able to generate informative futures prices useful in the prediction of the underlying stock price. Moreover the participants were not professional investors but merely undergraduate finance students with only a cursory introduction to futures trading. Our results provide additional evidence supporting the use of VFMs in forecasting and show that VFMs are powerful forecasting tools.