A recent study of the fixed-odds betting market on baseball games, while finding that the betting market is generally efficient, also found evidence of an underbetting on underdog teams. This article examines the evidence for this new anomaly. It corrects Woodland and Woodland's estimates of the commission, subjective win probabilities and test statistics. The efficiency null hypothesis cannot be rejected for all of their tests when revised test statistics are calculated for their sample period (however, like them, it was found that slight underdogs are underbet). It is also shown that their bias is not simply a bias involving favourites and underdogs. Whether underdogs are playing at home or away also seems to matter in their sample period. As well a positive relationship between returns and subjective probabilities was found for underdogs and favourites, a relationship suggestive of a favourite-longshot bias rather than its reverse. It is concluded that there is insufficient evidence to claim that this bias is a ‘true market inefficiency’.

In this paper, the relationship between the investment performances of equity securities and their price–earnings ratios is examined using an approach similar to the one employed by Basu in a 1977 paper. From the tests, we conclude that, from 1979 through 1984, there were some moderate excess rates of return earned by selecting stocks based on their price–earnings ratios but that these excess rates were not obtained from investing in low price–earnings stocks.

A recent paper byWoodland andWoodland examines the efficiency of odds betting on professional hockey games, finding that actual returns on underdog bets consistently exceed expected returns and evidence of a reverse favorite-longshot bias. This article corrects the Woodland and Woodland calculation of bookmaker commissions for unchanged money lines. The authors’ revision substantially lowers the commission and thus is potentially important for tests of efficiency. The article also examines the impact of changes in money lines, which further reduce commissions but raise actual returns. The impact of these revisions on tests of efficiency is examined using the Woodland and Woodland sample. In general, the authors show that their revised no line change test statistic is a more stringent test of efficiency than either the Woodland andWoodland test statistic or any reasonable line change test statistic. However, the authors’ revised test statistics continue to find the inefficiency documented by Woodland and Woodland.

This paper tests for the presence of the favourite-longshot bias in a new setting. This bias #150 the tendency for bettors to underbet favourites and overbet longshots #150 has been found in most studies of pari-mutuel and bookmaking betting markets in the USA, the UK and Australia. However, there is growing evidence that in at least some pari-mutuel betting markets there is no favourite-longshot bias. This paper examines the previously unexplored New Zealand pari-mutuel betting market on horse races for evidence of this bias. Utilizing a large sample of recent New Zealand thoroughbred horse races, it is found that while early, off-track bettors price this bias into odds, late (on-and off-track) bettors eliminate much of the bias by the close of betting. That is, the results reinforce the view that not all pari-mutuel betting markets are characterized by a favourite-longshot bias at the close of betting. Evidence is also found that late bettors in this market are smart bettors.

In this paper, we extend the Johnson, Pawlukiwicz, and Mehta [1] skewness-adjusted binomial model to the pricing of futures options and examine in some detail the asymptotic properties of the skewness model as it applies to futures and spot options. The resulting skewness-adjusted futures options model shows that for a large number of subperiods, the price of futures options depends not only on the volatility and mean but also on the risk-free rate, asset-yield, and other carrying-cost parameters when skewness exists.