Internet-Based Virtual Stock Markets for Business Forecasting

TLDR

Internet‑based virtual stock markets aggregate participants’ predictions about future market outcomes, using virtual shares whose value depends on realized market situations, and offer a way to forecast short‑ and medium‑term market developments. This article evaluates the design options, forecast accuracy, and performance of VSMs relative to expert predictions for business forecasting. The authors implement VSMs in three real‑world business forecasting applications, examine design possibilities, assess feasibility and accuracy, compare performance to expert predictions, and propose a new validity test for VSM forecasts. The study concludes that VSMs are feasible for business forecasting and provides suggestions for future research.

Abstract

The application of Internet–based virtual stock markets (VSMs) is an additional approach that can be used to predict short– and medium–term market developments. The basic concept involves bringing a group of participants together via the Internet and allowing them to trade shares of virtual stocks. These stocks represent a bet on the outcome of future market situations, and their value depends on the realization of these market situations. In this process, a VSM elicits and aggregates the assessments of its participants concerning future market developments. The aim of this article is to evaluate the potential use and the different design possibilities as well as the forecast accuracy and performance of VSMs compared to expert predictions for their application to business forecasting. After introducing the basic idea of using VSMs for business forecasting, we discuss the different design possibilities for such VSMs. In three real–world applications, we analyze the feasibility and forecast accuracy of VSMs, compare the performance of VSMs to expert predictions, and propose a new validity test for VSM forecasts. Finally, we draw conclusions and provide suggestions for future research.