Market Consensus
Market consensus is a reference probability derived from market prices, such as the mid price, last trade, or a volume weighted average. It is often used as a benchmark forecast.
Definition
Market consensus is an aggregated probability estimate implied by a market. It turns prices into a single reference forecast for a binary event.
Common ways to define it
• Mid (average of best bid and best ask)
• Last trade (can be noisy in thin markets)
• VWAP (volume weighted average price over a window)
• Close (price at a defined cutoff time)
Why it matters
Market consensus is a strong benchmark because it aggregates many participants’ information. It is also useful for evaluating your forecasts: you can compute Brier skill score relative to the market and see whether you add value.
Common pitfalls
Thin liquidity: last traded price can misrepresent consensus if trades are sparse. Prefer mid or VWAP when possible.
Time mismatch: compare forecasts at the same forecast horizon to avoid unfair comparisons.
Related
Market consensus is based on implied probability and ties into broader ideas like crowd wisdom.