The impact of insider trading on forecasting in a bookmakers’ horse betting market

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Abstract.This paper uses a new variable based on estimates of insider trading to forecast the outcome of horse races. We base our analysis on Schnytzer, Lamers and Makropoulou (2008) who showed that inside trading in the 1997-1998 Australian racetrack betting market represents somewhere between 20 and 30 percent of all trading in this market. They show that the presence of insiders leads opening prices to deviate from true winning probabilities. Under these circumstances, forecasting of race outcomes should take into account an estimate of the extent of insider trading per horse. We show that the added value of this new variable for profitable betting is sufficient to reduce the losses when only prices are taken into account. Since the only variables taken into account in either Schnytzer, Lamers and Makropoulou (2008) or this paper are price data, this is tantamount to a demonstration that the market is, in practice, weak-form efficient.

Probabilistic forecasting with discrete choice models: Evaluating predictions with pseudo-coefficients of determination

“…To begin with, there are significant differences between R 2 s and pseudo-R 2 s. So, while pseudo-R 2 s are commonly reported (Cheng & Stough, 2006;Schnytzer et al, 2010), their usage is seldom justified (Veall & Zimmerman, 1996), and there are still many unresolved issues associated with them. First, unlike R 2 , there is no single definition of pseudo-R 2 that is universally employed.…”

“…Often, these events are associated with markets for betting or trading on their outcome, e.g., betting markets in the case of sporting events , or prediction markets for political contests or for outcomes associated with business policies (Wolfers & Zitzewitz, 2006). Since the outcomes of CEs are of particular interest for economic (in the case of sporting events or business policies) or policy reasons (elections), the forecasting of CEs is a prominent subject in the literature (e.g., Schnytzer et al, 2010).…”

Fixed Odds Bookmaking with Stochastic Betting Demands

“…3 There is a large body of empirical evidences that document the favourite-longshot bias across different countries and in different market forms. See, for example, USA: Ziemba and Hausch (1986), Thaler and Ziemba (1988); Australia: Schnytzer and Shilony (1995), and Schnytzer et al (2008); UK: Vaughan Williams and Paton (1997), and Sung and Johnson (2010), among many others. 4 Ottaviani and Sorensen (2005) extend the Shin's analysis into a competitive bookmaking with asymmetric information.…”

“…See, for example, USA: Ziemba and Hausch (), Thaler and Ziemba (); Australia: Schnytzer and Shilony (), and Schnytzer et al . (); UK: Vaughan Williams and Paton (), and Sung and Johnson (), among many others.…”

Fixed Odds Bookmaking with Stochastic Betting Demands

“…3 There is a large body of empirical evidences that document the favourite-longshot bias across different countries and in different market forms. See, for example, USA: Ziemba and Hausch (1986), Thaler and Ziemba (1988); Australia: Schnytzer and Shilony (1995), and Schnytzer et al (2008); UK: Vaughan Williams and Paton (1997), and Sung and Johnson (2010), among many others. 4 Ottaviani and Sorensen (2005) extend the Shin's analysis into a competitive bookmaking with asymmetric information.…”