The Price of Disclosure in the Thoroughbred Yearling Market

Abstract

In this article, we examine disclosure as a tool to mitigate the effects of asymmetric information in a Thoroughbred yearling market. If disclosures influence market price, information contained therein must be valuable to buyers and hence diminish asymmetric information. Using public auction data, we find that disclosures do not influence price in a segment of the auction in which an implicit quality certification is available. However, in the other segment, we find evidence that some disclosures may provide valuable information to buyers.

Determinants of Weanling Thoroughbred Auction Prices

“…The overall fit of the models, as measured by the adjusted R 2 , is 0.56 and 0.63, respectively. These values lie within the range of measures of fit in other pricing models for yearlings and 2-year-olds (0.37-0.72) (see Plant and Stowe [2013] for a summary of the yearling models and Roberts and Stowe [2016] for the 2-year-old model). According to the adjusted R 2 values, model 2 fits the data somewhat better than model 1, although in general the signs, magnitudes, and significance of the explanatory variables are similar.…”

“…About 24% of the weanlings in the sale did not meet their reserve price. As in Plant and Stowe (2013) and Neibergs (2001), we expect the coefficient on this variable to be negative, indicating that buyers undervalue the horse relative to the seller (or that the seller overvalues the horse relative to the market).…”

On Estimating the Determinants of Yearling Thoroughbred Prices

“…Besides two papers investigating the determinants of the price of broodmares (Neibergs, 2001;Maynard and Stoeppel, 2007), every hedonic pricing model for Thoroughbreds has focused on yearlings (Chezum and Wimmer, 1997;Vickner and Koch, 2001;Robbins and Kennedy, 2001;Wimmer and Chezum, 2006;Parsons and Smith, 2008;Plant and Stowe, 2013). In nearly every study, the price of the horse was modelled as a function of its attributes (i.e., age, pedigree, colour), seller characteristics (i.e., reputation), and auction design (i.e., duration, size).…”

Hedonic Price Analysis of Non-Barren Broodmares

“…Given such a considerable contribution, breeders, buyers, sellers, and others are interested in understanding the thoroughbred market. Previous studies have considered mostly yearlings and sires, since these account for a larger share of racing horses (Robbins and Kennedy (2001) Plant and Stowe (2013) account for the impact of disclosures (i.e. eye, scope, and vet) on market prices, and find that such information decreases prices of low quality yearlings, but has no effect on prices of high quality yearlings.…”