A recent scandal involving a Green Beret arrested for wagering on a classified US raid may be more than an isolated incident, according to a new study. The study, conducted by researchers from the London Business School and Yale, suggests that the soldier's actions may be an extreme example of a small group of informed traders who significantly impact prices on Polymarket, while the majority of participants incur losses.
The researchers analyzed 1.72 million accounts and $13.76 billion in trading volume from 2023 to 2025, concluding that a mere 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and moving prices in the correct direction. In contrast, the remaining 97% of traders primarily provide liquidity and generate volume, but ultimately end up on the losing side of trades against the informed minority. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, reversing the direction of the trades.
The results showed that among the biggest winners, only 12% outperformed the simulated results, indicating that their success was due to skill rather than chance. Furthermore, the study found that when skilled traders account for a larger share of trading activity, market accuracy improves, particularly in the final stages before an event's resolution.
These traders are also the first to react to new information, adjusting their positions in response to events such as Federal Reserve announcements or corporate earnings. However, the study raises concerns about the potential for insider trading, citing the example of the US removal of Nicolás Maduro from power in Venezuela. In the days leading up to the operation, three newly created Polymarket accounts placed large bets on the contract, which ultimately yielded over $630,000 in profits.
While there is no evidence of wrongdoing, the incident highlights the risk of insider trading in prediction markets. Overall, the study challenges the notion that prediction markets are driven by the collective knowledge of their participants, instead suggesting that they are driven by a small group of informed traders.