Betting Market Efficiency - Citations

Discussing betting market efficiency is guaranteed to start arguments. Some believe that betting markets are efficient whilst some believe there are inefficiencies in betting markets. The truth is that both beliefs are correct.

Betting markets are efficient at aggregating information into prices but not in zero time. Starting prices for horse races are long-term efficient (over many races prices represent the true chances of a horse winning) but when a betting market opens the prices are rarely at their starting prices. 

Early prices are at best a guess, many hours before the race start. New information flows into the betting market by way of the wisdom of the crowd and their betting intentions. As the number of bets increases, the market's prediction becomes ever more accurate (by way of publicly available data, late breaking information, non-runners, private information, observations from the parade ring and during the canter to the start etc.) until the start of the race when all public and private information has been aggregated into the starting price.

Because betting markets take time to aggregate information, fleeting ineffciencies occur and a trader has to take advantage before the rest of the market participants arbitrage out that inefficiency.

There now follows a list of citations for academic research on betting market efficiency. Papers with links can be downloaded from here. Pages without links might be found by those with JSTOR accounts.

Asch, Peter, Burton G. Malkiel, and Richard E. Quandt. "Market efficiency in racetrack betting." Journal of Business (1984): 165-175.

Bird, Ron, and Michael McCrae. "Tests of the efficiency of racetrack betting using bookmaker odds." Management Science 33.12 (1987): 1552-1562.


Dolbear Jr, F. Trenery. "Is racetrack betting on exactas efficient?." Economica (1993): 105-111.

Figlewski, Stephen. "Subjective information and market efficiency in a betting market." The Journal of Political Economy (1979): 75-88.

Forrest, David, and Robert Simmons. "Globalisation and efficiency in the fixed-odds soccer betting market." Centre for the Study of Gambling and Commercial Gaming, University of Salford (2001).

Gabriel, Paul E., and James R. Marsden. "An examination of market efficiency in British racetrack betting." Journal of Political Economy (1990): 874-885.

Golec, Joseph, and Maurry Tamarkin. "The degree of inefficiency in the football betting market: Statistical tests." Journal of Financial Economics 30.2 (1991): 311-323.


Hausch, D. B., Lo, V.S.Y. & Ziemba, W.T. (1994) Efficiency of Racetrack Betting Markets, San Diego, London: Academic Press.

Hausch, D.B. & Ziemba, W.T. (1985) Transactions Costs, Extent of Inefficiencies, Entries and Multiple Wagers in a Racetrack Betting Model. Management Science, 31-4, pp. 381-394.
 
Hausch, Donald B., William T. Ziemba, and Mark Rubinstein. "Efficiency of the market for racetrack betting." Management science 27.12 (1981): 1435-1452.

Johnson, Johnnie EV, Owen Jones, and Leilei Tang. "Exploring decision makers' use of price information in a speculative market." Management Science 52.6 (2006): 897-908.
Smith, Michael A., David Paton, and Leighton Vaughan Williams. "Market Efficiency in Person‐to‐Person Betting." Economica 73.292 (2006): 673-689.

Snyder, Wayne W. "Horse racing: Testing the efficient markets model." The Journal of finance 33.4 (1978): 1109-1118.

Sung, Ming-Chien, Johnnie EV Johnson, and Alistair C. Bruce. "Searching for semi-strong form inefficiency in the UK racetrack betting market." Information Efficiency in Financial and Betting Markets (Cambridge: Cambridge University Press, 2005) pp (2005): 179-192.

Twomey, Paul. Market efficiency of horse-race betting markets with applications to spread betting. Diss. University of Sussex, 2005.

Vlastakis, Nikolaos, George Dotsis, and Raphael N. Markellos. "How efficient is the European football betting market? Evidence from arbitrage and trading strategies." Journal of Forecasting 28.5 (2009): 426-444.

Williams, Leighton Vaughan. "Can forecasters forecast successfully? Evidence from UK betting markets." Journal of Forecasting 19.6 (2000): 505-513.

Williams, Leighton Vaughan. "Information efficiency in betting markets: A survey." Bulletin of Economic Research 51.1 (1999): 1-39.

Williams, Leighton Vaughan, and David Paton. "Does information efficiency require a perception of information inefficiency?." Applied Economics Letters 4.10 (1997): 615-617.

(This page will be updated in due course.)

2 comments:

  1. A horse race market should be more accurate /efficient nearer to the off but there is no evidence it actually is accurate for any particular race. Markets, not the on-course or Betfair do not take full account of weight of money in the market nor even accept the requested bets required in full. There is also a huge amount of bias and hype used from a public all using much the same information the same way - that is, there is a scarcity of differing perceptions and diversity needed to make a market wise. Over a season the net average prices are accurate whether good information or bad is used in forming the prices. That comes from the magic of averaging, not accuracy.

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    1. Re-read and you'll see "starting prices for horse races are long-term efficient". That means in the long run. See http://www.betfairprotrader.co.uk/2010/12/efficient-market-hypothesis_3.html

      A single race may not be accurate but in the long-run as you add more and more races to your data set then the law of large numbers takes over and prices tend towards what the wisdom of the crowd says they should be.

      I don't know why people such as myself have to keep on explaining this. I guess it is the ego of those traders and bettors who possess a reality distortion field and believe that mean reversion doesn't apply to them.

      After your first sentence you drift into gibberish so maybe you would like to come up with some facts and figures rather suppositions and hearsay.

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