Wall Street Institutions Drive Professionalization of Prediction Markets

Prediction markets are undergoing a process of professionalization as Wall Street institutions enter the space, resulting in deeper liquidity and more efficient pricing. An academic working paper analyzing 13.76 billion dollars in Polymarket trades revealed that 3 percent of persistently skilled accounts captured approximately 27 percent of dollar profits by exploiting arbitrage opportunities and reacting quickly to news.

Theis Jensen, a Yale economist and co-author of the paper, suggests that as institutional competition intensifies, the proportion of traders with a persistent advantage will shrink. He argues that only the highest-tier firms, such as hedge funds, will maintain the ability to beat these markets. This shift reduces the risk of consistent pricing errors, benefiting the broader user base even as individual profit edges disappear.

Platforms like Kalshi have already demonstrated forecasting accuracy that matches or exceeds conventional benchmarks, including the Bloomberg consensus for CPI forecasts. Bank of America analyst Julie Hoover notes that as markets become more efficient and spreads tighten, finding mispricing opportunities will become increasingly difficult.