When are prediction markets most helpful? Evercore ISI has a formula

High-volume and short-term markets that ask simple questions with clear solution rules — the formula that Evercore ISI strategists say makes prediction markets useful for forecasting.

Researchers led by Julian Emanuel found that high-volume contracts produce more reliable odds than shallow markets. Similarly, contracts closer to expiration showed stronger probability than longer-term contracts.

Despite the growth, they refrained from calling prediction markets the north star.

“Their limitation is that they do not explore the future so much as uncover what the crowd believes,” the strategists wrote in a May 17 report.

There is another problem: Most contracts have low volume. Evercore found that only 8% of events on Kalshi and Polymarket achieved $1 million in volume.

A similar pattern was seen in live markets only. As of Friday afternoon, nearly 60% of live markets on Kalshi and Polymarket have trading volumes below $1,000. Only a sliver of about 5.3% has markets with at least $100,000 in trading volume.

But Evercore noted that prediction markets thrive during chaotic macro events because they respond to headlines or real-life moments more than traditional forecasting tools, which can face “survey errors, expert bias or subjective judgment.” This also helps a market penalize its participants and have a mix of macro traders, industry experts and regional participants.

“The resulting price is not a perfect guess, but it is generally a useful expression of the live consensus probability,” the analysts wrote.

But this diversity of traders can also be a hindrance. Analysts warned that everyone’s trading rationale ranges from entertainment to hedging, which could “contaminate” the market price. For example, a geopolitical market may represent a political view or fear rather than a prediction.

Strategists also warned that a weak market’s sudden action by a large trader could deceive the market’s outcome.

Having markets with an objective outcome rather than an uncertain outcome can impact how good prediction markets are at detecting the likelihood of the event. Strategists said this was especially true for geopolitical reasons.

For example, “will the ceasefire continue?” Analysts shared that this situation may depend on interpretation. When vague contracts are resolved, the focus can be less on the actual event taking place and more on fulfilling the language.

They said markets with simple questions also have disadvantages. Because simplified contracts may fail to capture the full picture of a real-life event.

“A bilateral contract could capture some of this uncertainty by leaving out the pieces investors actually need,” Evercore wrote.

Strategists said prediction markets are soaring due to institutional interest, infrastructure, contract scope and the 2024 CFTC decision to approve election-related contracts on Kalshi. Leading prediction market platforms Kalshi and Polymarket saw an increase in trading volume during the 2024 presidential election, but trading volume increased rapidly in the fall of 2025.

Disclosure: CNBC and Kalshi have a business relationship that includes customer acquisition and minority investment.