The researchers propose that prediction markets may be especially accurate because users are putting their own money on the line, and they uncovered signs that those who wager on earnings markets are unusually sophisticated.

Every quarter, Wall Street's hordes of analysts engineer financial models, parse alternative data and jostle for access to executives as they attempt to predict company earnings. New research suggests the anonymous bettors on Polymarket might give them a run for their money.

A report from brokerage Wolfe Research finds that when Polymarket users bet that companies are likely to miss earnings estimates, the firms do so at a rate of 44%, more than double the historic benchmark of 18%. When bettors are very confident that a company will exceed estimates, that comes to pass 90% of the time, above the 81% norm.

"The accuracy is possibly due to crowdsourcing," Yin Luo, who runs quant research at Wolfe, wrote in an email. "In this case, investors betting on Polymarket earnings releases are likely to be much more diverse than consensus earnings (which are based on only sell-side analysts)."

It's the latest indication that prediction markets may be a useful source of information for investors, and one day emerge as a rival to sell-side analysts, whose job it is to forecast earnings. A working paper from London Business School and Yale University researchers updated in early April concludes that the nascent platforms are highly accurate, incorporate new information more quickly than analysts and avoid some of the biases built into Wall Street estimates.

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Whatever the driving force behind the performance, the two studies underscore the promise of earnings-linked event contracts, which so far account for only a small fraction of activity on platforms like Polymarket and its chief rival, Kalshi. The research bolsters the companies' argument that while sports betting constitutes a majority of their volume, these novel derivatives will eventually play a major role on Wall Street.

Predicting whether or not a company will beat earnings forecast can be complicated. For one, the vast majority of stocks routinely beat estimates, in part because corporate executives are incentivized to guide expectations lower in hopes of generating a surprise positive performance.

Since September, Polymarket has allowed users to wager on earnings via yes-or-no contracts on whether certain large stocks will beat the consensus estimate. In order to compare the accuracy of those bets to Wall Street estimates, Wolfe looked at about 430 earnings releases covered by Polymarket, or roughly a quarter of such events for Russell 1000 names over the time period.

"The signal they generate will offer an increasingly rich and high-frequency lens through which to study information aggregation, belief formation, and the pricing of uncertainty across virtually every domain of event space that moves the market," the Wolfe researchers wrote of prediction markets.

While exchange operators and other financial players are investing heavily in prediction market platforms, it's still early days. Earnings markets had just $795,315 in volumes on Polymarket in the most recent week, or 0.03% of the total, according to user-compiled data on Dune Analytics.

Vinesh Jha, who runs an alternative data platform that also crowdsources earnings estimates, said he can see Polymarket being used as a complementary source of information. But it's likely too early for wide adoption as an input into quantitative fund managers' trading systems.

"The beat/miss dichotomy is less interesting than knowing what earnings will be (and, further, what the market reaction will be)," the founder of ExtractAlpha wrote in an email. "It's far too soon to tell, and this data is much too thin."

The study revised earlier this month by LBS and Yale academics sheds light on why earnings markets might be accurate despite having muted volumes. Users who bet on earnings tend to make money on prediction markets, while most traders lose, suggesting the former might be particularly sophisticated.

"Informed traders need uninformed traders to make money," wrote Roberto Gomez-Cram, Yunhan Guo, Howard Kung and Theis Ingerslev Jensen. "Earnings market traders are a relatively skilled subset."

The study also found that earnings markets for companies audited by one particular accounting firm are more accurate than markets for companies with other auditors. The researchers declined to name the firm, citing inconclusive evidence, but the finding raises questions about whether some participants in Polymarket's earnings markets may be trading on material non-public information.

Polymarket did not respond to a request for comment on these findings.

Wall Street Quants See an Edge in Polymarket Earnings Forecasts