Evercore ISI strategists have identified a formula for when prediction markets are most effective for forecasting: high volume, short-term contracts, and clearly defined resolution rules. Led by Julian Emanuel, the firm's research indicates that contracts with greater trading volume yield more reliable probability assessments compared to those with limited participation. Similarly, markets nearing their termination date tend to show stronger predictive power than long-term contracts.
While acknowledging the growth of prediction markets, the strategists caution against viewing them as infallible guides. They emphasize that these markets "do not discover the future so much as reveal what the crowd believes." A significant challenge is the low volume plaguing many contracts; Evercore ISI found that only about 8% of events on platforms like Kalshi and Polymarket surpass $1 million in volume. As of a recent Friday, nearly 60% of live markets on these platforms had less than $1,000 in trading volume, with a mere 5.3% reaching at least $100,000.
Kalshi and Polymarket.
Gabby Jones | Bloomberg | Martin Lelievre | Getty Images
Despite these limitations, prediction markets can be particularly useful during volatile macroeconomic periods. They react more nimbly to headlines and real-world events than traditional forecasting methods, which can be susceptible to polling errors, expert bias, or subjective judgment. The inherent design of prediction markets, which can penalize participants and incorporate insights from a diverse range of traders—including macro strategists, industry experts, and regional players—contributes to their responsiveness.
"The resulting price is not a perfect forecast, but it is often a useful expression of the live consensus probability," the analysts noted. However, this diversity can also be a drawback, as participants' motivations can range from entertainment to hedging, potentially "contaminating" the market price. For instance, a geopolitical market might reflect political sentiment or fear rather than an objective forecast.
The strategists also warned that thinly traded markets are vulnerable to manipulation, where a large trader can significantly skew the perceived outcome. Furthermore, the clarity of a market's resolution rules is crucial. Ambiguous contracts, such as "will a ceasefire hold?", can lead to outcomes determined by linguistic interpretation rather than the event itself, particularly in geopolitical contexts. Conversely, overly simplified contracts may fail to capture the full complexity of real-world events, offering only a partial view of the uncertainty involved.
The surge in prediction markets is attributed to increased institutional attention, infrastructural development, a broader range of contract offerings, and the 2024 CFTC decision to approve election-related contracts on Kalshi. Platforms like Kalshi and Polymarket experienced significant trading volume growth during the 2024 presidential elections, with a notable surge in the fall of 2025.
Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.
