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Forecasting outcomes in spread betting markets: can bettors use 'quarbs' to beat the book?

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Author Info

  • David Paton

    (Nottingham University Business School, UK)

  • Leighton Vaughan Williams

    (Nottingham Trent University, UK)

Abstract

In this paper, we examine a relatively novel form of gambling, spread (or index) betting that overlaps with practices in conventional financial markets. In this form of betting, a number of bookmakers quote bid-offer spreads about the result of some future event. Bettors may buy (sell) at the top (bottom) end of a spread. We hypothesize that the existence of an outlying spread may provide uninformed traders with forecasting information that can be used to develop improved trading strategies. Using data from a popular spread betting market in the United Kingdom, we find that the price obtaining at the market mid-point does indeed provide a better forecast of asset values than that implied in the outlying spread. We further show that this information can be used to develop trading strategies leading to returns that are consistently positive and superior to those from noise trading. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.949
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 24 (2005)
Issue (Month): 2 ()
Pages: 139-154

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Handle: RePEc:jof:jforec:v:24:y:2005:i:2:p:139-154

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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Cited by:
  1. 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.
  2. Marshall, Ben R., 2009. "How quickly is temporary market inefficiency removed?," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 917-930, August.

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