Arbitrage Analysis in Polymarket NBA Markets

TL;DR

This paper empirically investigates arbitrage opportunities in Polymarket's NBA markets, revealing high microstructural efficiency with rare anomalies and liquidity constraints limiting risk-free profit potential.

Contribution

It provides a comprehensive analysis of market microstructure and arbitrage opportunities in decentralized prediction markets, highlighting liquidity constraints and the rarity of exploitable mispricings.

Findings

Single-market arbitrage opportunities are extremely rare and short-lived.

Combinatorial inefficiencies are more frequent but limited by shallow order books.

Median arbitrage return is 101 basis points, but the 'Middle' jackpot is never realized.

Abstract

While decentralized prediction markets like Polymarket have gained significant traction, their market microstructure and high-frequency pricing efficiency remain underexplored. This paper conducts a systematic empirical analysis of algorithmic arbitrage within Polymarket's NBA game markets. By reconstructing continuous market states from over 75 million limit order book snapshots across 173 games, we evaluate the frequency, duration, and profitability of both single-market and combinatorial arbitrage opportunities. Our findings demonstrate profound microstructural efficiency. Single-market anomalies are exceedingly rare, yielding only 7 executable in-game episodes that persist for a median duration of just 3.6 seconds. Combinatorial inefficiencies are more frequent, producing 290 active episodes overwhelmingly concentrated in the final minutes of live play. While combinatorial execution yields a statistically meaningful median return of 101 basis points, we find that the theoretical "Middle" jackpot is never empirically realized. Furthermore, execution is severely bottlenecked by shallow order book depth, with 76.9\% of combinatorial opportunities constrained to an average executable size of just 14.8 shares. Ultimately, while executable mispricings exist, they are structurally bounded by liquidity, confining risk-free extraction strictly to the retail scale.