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The Incidence of Insider Trading in Betting Markets and the Gabriel and Marsden Anomaly

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  • Michael Cain
  • David Law
  • David A. Peel

Abstract

Estimates of insider trading in the betting on individual races, conditional on the Shin model (Economic Journal, Vol. 103 (1993), pp. 1141–1153), are employed in an analysis of the market anomaly observed by Gabriel and Marsden (Journal of Political Economy, Vol. 98 (1990), pp. 874–885) that Tote payments on winning bets consistently exceed those paid by bookmakers. Use of more appropriate statistical methods suggests that the original anomaly disappears, but that another remains: bookmakers pay more generously than the Tote on winning bets on favourites, but less generously on winning longshot bets. This discrepancy is shown to be associated with the incidence of insider trading in the betting on each race, and it is argued that it cannot be arbitraged away because of the bookmakers’ dominant market position.

Suggested Citation

  • Michael Cain & David Law & David A. Peel, 2001. "The Incidence of Insider Trading in Betting Markets and the Gabriel and Marsden Anomaly," Manchester School, University of Manchester, vol. 69(2), pages 197-207, March.
    • Handle: RePEc:bla:manchs:v:69:y:2001:i:2:p:197-207
    DOI: 10.1111/1467-9957.00242
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    Cited by:

    1. Smith, Michael A. & Paton, David & Williams, Leighton Vaughan, 2009. "Do bookmakers possess superior skills to bettors in predicting outcomes?," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 539-549, August.
    2. Nikolaos Vlastakis & George Dotsis & Raphael N. Markellos, 2009. "How efficient is the European football betting market? Evidence from arbitrage and trading strategies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(5), pages 426-444.
    3. Les Coleman, 2007. "Just How Serious is Insider Trading? An Evaluation using Thoroughbred Wagering Markets," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 1(1), pages 31-55, February.
    4. D. A. Peel & Jie Zhang & D. Law, 2008. "The Markowitz model of utility supplemented with a small degree of probability distortion as an explanation of outcomes of Allais experiments over large and small payoffs and gambling on unlikely outc," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 17-26.
    5. Vincenzo Candila & Antonio Scognamillo, 2019. "On the Longshot Bias in Tennis Betting Markets: The Casco Normalization," Working Papers 3_236, Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno.
    6. Les Coleman, 2004. "New light on the longshot bias," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 315-326.

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