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Broken odds and the favourite-longshot bias in parimutuel betting: a direct test

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Author Info
W. David Walls
Kelly Busche

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Abstract

This research examines empirically the effect using broken odds - the rounded off odds reported by horse track operators - on statistical tests of market efficiency in parimutuel gambling. It finds that using rounded-off odds to test for market efficiency, instead of using the exact values, introduces a downward bias in the test statistics for favourite horses. Previous studies, because they relied on the rounded-off odds data, may have overstated the extent of the favourite-longshot bias in parimutuel wagering markets.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 10 (2003)
Issue (Month): 5 (April)
Pages: 311-314
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Handle: RePEc:taf:apeclt:v:10:y:2003:i:5:p:311-314

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  1. Alexander K. Koch & Hui-Fai Shing, 2007. "Bookmaker and pari-mutuel betting: Is a (reverse) favourite-longshot bias built-in?," Royal Holloway, University of London: Discussion Papers in Economics 07/04, Department of Economics, Royal Holloway University of London. [Downloadable!]
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  2. Les Coleman, 2004. "New light on the longshot bias," Applied Economics, Taylor and Francis Journals, vol. 36(4), pages 315-326, March. [Downloadable!] (restricted)
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