Evercore ISI Lays Out the Formula for Trusting Prediction Markets
High volume, short-term contracts, and simple resolution rules separate signal from noise
Julian Emanuel's team finds that prediction markets work best when volume is high, duration is short, and the question is binary. The crowd tells you what it be
The Formula: Volume, Duration, Resolution
Evercore ISI strategists led by Julian Emanuel published a framework for reading prediction markets that traders should internalize before treating any contract as gospel.
The formula is straightforward: high volume, short-term duration, simple questions with clear resolution rules. Contracts that check all three boxes produce more reliable probability signals. Shallow markets and long-dated contracts introduce noise. The takeaway isn't to ignore prediction markets entirely. It's to weight your conviction based on the structure of the contract you're watching.
Emanuel's team specifically noted that contracts closer to their termination date showed stronger probability signals versus long-term contracts. Volume filters out the noise; duration sharpens the read.
What the Crowd Believes vs. What Happens
Despite the framework, Evercore stopped short of calling prediction markets a north star. As they wrote: "Their limitation is that they do not discover the future so much as reveal what the crowd believes."
That distinction matters. A contract trading at 72% doesn't mean the event has a 72% chance of occurring in some objective sense. It means that's the price at which buyers and sellers clear. When the crowd is informed and the market structure is sound, that price is useful. When the crowd is thin or the resolution is ambiguous, the signal degrades quickly.
Evercore also flagged a structural limitation: "A binary contract can capture one slice of that uncertainty while leaving out the parts investors actually need." Prediction markets simplify. They force a yes/no framing on outcomes that often exist on a spectrum.
Why Prediction Markets Skyrocketed
The note arrived as prediction market activity has hit new highs. Evercore attributed the surge to four factors: institutional attention, improved infrastructure, contract breadth, and the 2024 CFTC decision to approve election-related contracts on Kalshi.
Kalshi and Polymarket both saw significant trading volume growth during the 2024 presidential election cycle, but the strategists noted that volume truly skyrocketed in fall 2025. The regulatory greenlight for election contracts opened the door for more mainstream participation and more serious capital deployment.
The question now is whether that volume persists outside of major election cycles, or whether prediction markets remain episodic attention magnets that spike during high-profile binary events.
How to Use This
For traders watching catalysts, prediction markets offer one more data point. But the Evercore framework suggests treating that data point differently depending on the contract.
A high-volume, short-dated contract on a Fed decision or an election outcome is worth watching. A low-volume, long-dated contract on a nebulous geopolitical question is closer to sentiment reading than probability discovery.
The same discipline applies to any information source. Volume and structure matter. The crowd is useful, but it's not omniscient. If you're tracking prediction markets ahead of earnings or macro catalysts, check our [Whale Alerts dashboard](/whalealerts) for options flow that shows where real capital is moving.
For informational purposes only. Not investment advice. Published Monday, May 25, 2026.