Trading on Tomorrow: The Economics and Rise of Prediction Markets

Prediction markets are platforms where participants trade on the outcomes of future events. These markets convert collective opinion into prices that serve as implied probabilities. Once an academic curiosity, they have evolved into a multibillion-dollar industry attracting major institutional backing. A new report from Katten and NERA Economic Consulting looks at how quickly these markets are growing and why they may be developing into a new kind of event-risk instrument.

The growth has been extraordinary. One leading US exchange saw its weekly trading volume surge from under $100 million to $4 billion by May 2026. Major brokerages, cryptocurrency exchanges and proprietary trading firms are now entering the space, with the parent company of one of the nation's largest stock exchanges investing $2 billion in a leading prediction market platform. Asset managers have filed for exchange-traded funds tied to prediction market contracts. New financial products are also reaching the market, including outcome-related options, structured notes linked to binary events and margined prediction contracts.

The report argues that prediction markets matter for two reasons: they generate useful forecasts and create new ways to trade event risk. Prediction markets aggregate dispersed knowledge into a single, continuously updated price signal. Research, including a February 2026 Federal Reserve working paper, has found that their forecasts can match or outperform those of professional forecasters. They also enable hedging of discrete event risks that traditional insurance and derivatives markets have not historically addressed. This gives businesses a flexible tool to manage exposure to low-frequency, high-impact events. Sector applications now span policy and legal forecasting, economics, climate and weather, entertainment, science and corporate decision-making.

It also examines the legal and regulatory issues that accompany that growth. The CFTC has moved to assert jurisdiction over event contracts and brought its first insider trading case involving prediction markets in April 2026. Questions still persist about how contracts referencing publicly traded companies should be classified under federal securities law. More than half of all S&P 500 companies are now referenced in event contracts. That raises new considerations around disclosure, compliance and potential regulatory scrutiny for public companies.

As prediction markets continue to evolve, the institutions that engage early will help define the trajectory of this emerging asset class.

For a deeper look at the market’s growth and the issues it presents, browse the interactive report below.

Download the report PDF.

Jianghao Liu, MA, a senior consultant for NERA, co-authored this report with Katten.

Charlotte Giang, a senior data analyst for NERA, and Max Walman, a JD candidate from Western Law, contributed to the research and analysis in this report.