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12 - Market efficiency of the 50–30–20–10 horse-racing spread betting market

Published online by Cambridge University Press:  09 July 2009

Leighton Vaughan Williams
Affiliation:
Nottingham Trent University
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Summary

Introduction

In this chapter we seek evidence to suggest that market signals in fixed-odds betting markets can be used to identify profitable spread betting opportunities. It is the belief that inside information is still largely exclusive to the fixed-odds markets that drives this work; potential spread bettors observe the changes in the fixed-odds prices offered by the fixed-odds bookmakers, use these changes to calculate the expected spread points for each horse and then take advantage of discrepancies between their estimates of the points and the spread being offered by the spread betting firm to place promising bets. For this endeavour to be successful, there are two main requirements of the markets in question. The first is that the evolution of the fixed-odds prices must be such that the probability estimates based upon the odds tend to improve. There are several previous studies that suggest that this is the case – see, for example, Crafts (1985) for British racing, Asch, Malkiel and Quandt (1982) for US racing and Schnytzer and Shilony (1995) for Australian racing. The second requirement is that the spread betting firms are slow to react, or do not react at all, to the fixed-odds price changes.

For each spread betting market the spread firm offers a spread (a, b) such that a < b. Once the market is complete the final value of the market, c, will be known.

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Chapter
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Publisher: Cambridge University Press
Print publication year: 2005

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References

Asch, P., Malkiel, B. G. and Quandt, R. E. (1982) ‘Racetrack Betting and Informed Behaviour’, Journal of Financial Economics, 10, pp. 187–94CrossRefGoogle Scholar
Bacon-Shone, J., Lo, Y. and Busche, K. (1992) Logistic Analyses for Complicated Bets, Research Report, 16, Department of Statistics, University of Hong Kong
Crafts, N. F. R. (1985) ‘Some Evidence of Insider Knowledge in Horse Racing Betting in Britain’, Economica, 52, pp. 295–304CrossRefGoogle Scholar
Harville, D. A. (1973) ‘Assigning Probabilities to the Outcome of Multi-Entry Competitions’, Journal of the American Statistical Association, 68, pp. 312–16CrossRefGoogle Scholar
Hausch, D. B., Ziemba, W. T. and Rubinstein, M. (1981) ‘Efficiency of the Market for Racetrack Betting’, Management Science, 27, pp. 1435–53CrossRefGoogle Scholar
Henery, R. J. (1981) ‘Permutation Probabilities as Models for Horse Races’, Journal of the Royal Statistical Society, Series B, 43, pp. 86–91Google Scholar
Kelly, J. L. Jr. (1956) ‘A New Interpretation of Information Rate’, Bell Systems Technical Journal, 35, pp. 917–26CrossRefGoogle Scholar
Lo, V. S. Y. and Bacon-Shone, J. (1992) ‘An Approximation to Ordering Probabilities of Multi-Entry Competitions’, Research Report, 16, Department of Statistics, University of Hong Kong
Schnytzer, A. and Shilony, Y. (1995) ‘Inside Information in a Betting Market’, Economic Journal, 105, pp. 963–71CrossRefGoogle Scholar
Stern, H. (1990) ‘Models for Distributions on Permutations’, Journal of the American Statistical Association, 85, pp. 558–64CrossRefGoogle Scholar
Twomey, P. M., (2005) PhD thesis, University of Sussex, in progress

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