What Is the Hollywood Stock Exchange?

The Hollywood Stock Exchange is an online prediction market in which "investors" bet on the performance of various components of the entertainment industry. The bets are made using credits called Moviestocks, Starbonds, TVStocks, Movie Funds, Idol Warrants, and derivatives. Trades are made in "Hollywood dollars," which players receive when they open an account, make successful trades and participate in the website's quizzes. Each "investment" has a ticker-like symbol: For example, the symbol for Ironman 3 is IRNM3.

Understanding the Hollywood Stock Exchange (HSX)

The Hollywood Stock Exchange game uses virtual specialist technology invented by Hollywood Stock Exchange co-founders and creators Max Keiser and Michael R. Burns. The exchange has been around since 1996 and is owned by Cantor Fitzgerald, which launched a real-world exchange similar to HSX, called the Cantor Exchange, in 2010.

Previous incarnations of the game included a music market (for purchasing musical artists), prizes for top gainers and, briefly, a "buyout" program in which the Hollywood Stock Exchange would reward top players by purchasing their portfolios at a price of $1 per $1 million of exchange currency if the player listed the portfolio for sale on eBay. These features have been discontinued. The practice of selling portfolios on eBay was inaugurated by Curtis Edmonds, a former Texas lawyer.

The Hollywood Stock Exchange attracted some private investment during the dotcom boom and ran TV ads on cable channels in an effort to attract players. After the dotcom crash, the exchange was acquired by units of Cantor Fitzgerald. Cantor Fitzgerald has used the exchange’s Moviestock prices to assist its gambling operations in the United Kingdom, in which bettors can place wagers on how much money U.S. films will gross.

The Hollywood Stock Exchange and Prediction Markets

The Hollywood Stock Exchange is generally considered a prediction market. Prediction markets are those created to trade on the outcome of events. The market prices can indicate what the crowd thinks the probability of the event is. A prediction market contract trades between zero percent and 100 percent. It is a binary option that will expire at the price of zero percent or 100 percent. Prediction markets can be thought of as belonging to the more general concept of crowdsourcing, which is specially designed to aggregate information on particular topics of interest.

Prediction markets, which tend to be quite accurate, exist for a wide range of subjects. Some, like the Iowa Electronic Markets, trade in real money. Lately, prediction markets have become quite popular for elections. The website fivethirtyeight.com, which analyzes the likely outcome of elections, among other events, factors in prediction markets.