Political Shocks and Price Discovery in Prediction Markets: Evidence from the 2024 U.S. Presidential Election

Abstract

Using transaction-level matched trades from Polymarket's 2024 U.S. presidential election market, we study how traders and prices respond to three precisely timed political shocks: the first Biden-Trump debate, the assassination attempt on Trump, and Biden's withdrawal. We find that trading rises after each event, with new entry at the assassination and withdrawal and, among incumbents, a response concentrated on already-active traders and those whose pre-event portfolios receive material event-time gains. We also show that the three shocks produce different Trump-price paths, depending on whether the news moves Biden and Harris together against Trump or reallocates probability between them. Biden's withdrawal generates the most trading yet the smallest Trump-price move because it shifts probability from Biden to Harris after weeks of market anticipation, and the linked candidate prices show that the main repricing runs from Biden to Harris. Finally, the debate's initial price move reverses while the assassination's persists, a difference we trace to transitory and permanent price impact, respectively.