Benchmarking Against the Market: A Clean Methodology
Why “beat the market” is tricky
Benchmarking forecasters against the market is attractive because it feels like a strong test: can you outperform crowd wisdom?
But it is also easy to do badly. Without clear definitions, your benchmark can become noisy, manipulable, or accidentally use future information.
The minimum viable market benchmark methodology
If you want a clean methodology, define these five things:
• eligible markets
• checkpoint rule
• consensus definition
• liquidity filters
• scoring and reporting rules
Step 1: define eligible markets
Create an eligible set so users cannot cherry pick only easy markets.
Example eligibility:
• binary markets only
• market open at least 24 hours
• category list is fixed
• exclude markets with ambiguous settlement rules
Publish the definition and compute coverage against it.
Step 2: use an evaluation checkpoint
Define which forecast you score. A common choice is:
• score the last forecast at T-24h
This prevents late forecasting from dominating. See Evaluation Checkpoints.
Step 3: define market consensus
Pick one and stick to it:
• mid price at the checkpoint
• VWAP in a window ending at the checkpoint
Do not use last traded price as the default. In thin markets it is often noise.
Step 4: apply liquidity filters
Market benchmarks only work when liquidity is real.
Example filters:
• spread must be below a threshold
• minimum volume in the consensus window
• minimum depth at best bid and ask
If a market fails filters, do not benchmark to the market. Fall back to base rate for that item, or exclude it from market benchmark reporting.
Step 5: score and report
Compute:
• user Brier score at the checkpoint
• market baseline Brier score using the consensus probability
• Brier skill score vs market for the markets that passed filters
What to publish on the scorecard
To keep the methodology honest, publish:
• checkpoint definition
• consensus definition (mid or VWAP, plus window)
• percent of markets that passed liquidity filters
• N markets and N forecasts
• coverage against eligibility
Without these, “beat the market” is a slogan, not a measurement.
A clean default setup you can copy
If you want a simple default:
• checkpoint: T-24h
• consensus: mid price at checkpoint
• liquidity filters: spread cap plus minimum 24h volume
• report: BSS vs base rate and BSS vs market (filtered)
This gives you a stable baseline and a market benchmark when quality is sufficient.
Common mistakes
Using later prices: if your consensus snapshot is after the checkpoint, you introduce look ahead bias.
Ignoring coverage: market benchmarking does not fix selection bias. Track coverage.
Not separating thin markets: thin markets produce noisy baselines. Filter or flag them.
Takeaway
Market benchmarking can be meaningful, but only with a clear methodology: eligibility, checkpoints, consensus definition, liquidity filters, and transparent reporting. If you publish those rules, “I beat the market” becomes a test you can trust.