Focal: Signal Credibility Index for Prediction Markets
Maksym Nechepurenko · 2026 · Working Paper
Abstract
A microstructure-grounded composite — variance ratio, two-sidedness, and trader-concentration adjustment — designed to predict when a price move will acquire behavioral traction. Distinguishes durable repricing from transient order-flow pressure.
The Focal Signal Credibility Index (SCI) is a composite microstructure indicator designed to distinguish durable price moves from transient order-flow pressure in prediction markets.
Components
The index combines three microstructure signals:
- Variance ratio — tests for mean reversion vs. random walk behavior in price increments
- Two-sidedness — measures participation balance between YES and NO sides of the market
- Trader-concentration adjustment — downweights signals from markets dominated by a small number of wallets
Interpretation
A high Focal score indicates that a price move is likely to persist — other participants will update their beliefs and follow. A low score indicates transient imbalance that will revert as liquidity restores.
Applications
Focal is designed for use in:
- Market-making strategies (to avoid adverse selection during credible repricing)
- Signal filtering in AI forecasting pipelines
- Execution timing for larger orders
Related tracks
Cite this work
@misc{nechepurenko2026focal,
title = {Focal: Signal Credibility Index for Prediction Markets},
author = {Nechepurenko, Maksym},
year = {2026},
note = {Working paper}
}