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Adapting Pairs Trading to Gambling Markets A Case Study of the U.S. Presidential Election

Haoyu Liu, Len Thomas, Benjamin Baer, Carl Donovan · 2026 · arXiv (Cornell University)

DOI: 10.48550/arxiv.2609.22639 · cited by 0 works (OpenAlex) · open-access PDF

Korean

쌍 거래는 관련 자산 사이의 관계에서 평균 데이터 반환을 이용합니다. 우리는 두 개의 주요 당사자 후보자의 결합 된 암시 확률을 잠재적 인 Ornstein-Uhlenbeck 과정으로 모델링하여 정치적 도박 시장에이 아이디어를 적응시키고 관련 자산 사이의 관계에서 평균 반환 수준이 시간이 지남에 따라 달라지며 관찰에는 추가적인 소음이 포함됩니다. 모델 매개 변수는 정기적으로 샘플 된 확률 데이터를 사용하여 국가-공간 확률을 사용하여 추정되며, 연속적으로 반복되는 값은 단일 보존 된 관찰과 연속 시간 전환에 보존 된 샘플링 간격의 짧은 수를 나타냅니다. 파라메트릭 부트스트라프 상승 예측 경계 신호 식별 시간은

Machine translation (Meta M2M100); the English original follows.

Abstract

Pairs trading exploits mean reversion in the relationship between related assets. We adapt this idea to political betting markets by modelling the combined implied probability of the two major-party nominees with a latent Ornstein-Uhlenbeck process whose mean-reversion level varies over time and whose observations contain additive noise. Model parameters are estimated from regularly sampled odds data using a state-space likelihood, with consecutive repeated values represented by a single retained observation and the elapsed number of sampling intervals preserved in the continuous-time transition. Parametric-bootstrap upper prediction bounds identify signal times at which the combined implied probability is likely to decline, and a no-intercept Bradley-Terry-type model selects the candidate-specific odds quote. The candidate-selection model is trained on 2020 U.S. presidential-election data and evaluated out of sample on 2024 data. The 2024 analysis produced 130 signals, empirical one-step coverage of 95.1%, a mean synthetic odds-price return of 1.86%, and an unannualized per-trade Sharpe-type ratio of 1.12. These returns are frictionless descriptive quantities rather than executable betting-exchange profits. The results support the integrated framework as a proof of concept for two-candidate electoral markets.

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Topics: Odds, Econometrics, Sample (material), Economics, Presidential election, Executable

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