“prediction markets price a 60% chance of 5% unemployment but only a 10% chance of the rate cuts that always follow”
Introduces implied correlation as a trading opportunity in prediction markets. Polymarket currently prices a 60%+ chance of 5% unemployment this year alongside only a 10% chance of aggressive Fed rate cuts, even though every historical episode of that unemployment spike triggered an average of seven cuts. Argues that because prediction markets are still priced idiosyncratically, cross-market mispricings like this are common and create attractive relative value trades.
Some technical background helpful
Platforms mentioned: Polymarket