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Breakage and betting market efficiency: evidence from the horse track

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  • Kelly Busche
  • W. David Walls

Abstract

In this research the effect of breakage—the rounding down of payoffs to winning bets—on the measured efficiency of racetrack betting markets is examined empirically. Over twenty thousand horse races are analysed and it is demonstrated that evidence of betting market inefficiency is systematically related to the expected breakage. These empirical results suggest that failure to control for breakage may bias statistical tests towards rejection of the efficiency hypothesis.

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  • Kelly Busche & W. David Walls, 2001. "Breakage and betting market efficiency: evidence from the horse track," Applied Economics Letters, Taylor & Francis Journals, vol. 8(9), pages 601-604.
    • Handle: RePEc:taf:apeclt:v:8:y:2001:i:9:p:601-604
    DOI: 10.1080/13504850010021154
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    References listed on IDEAS

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    1. Asch, Peter & Malkiel, Burton G. & Quandt, Richard E., 1982. "Racetrack betting and informed behavior," Journal of Financial Economics, Elsevier, vol. 10(2), pages 187-194, July.
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    5. Richard N. Rosett, 1965. "Gambling and Rationality," Journal of Political Economy, University of Chicago Press, vol. 73, pages 595-595.
    6. Ali, Mukhtar M, 1977. "Probability and Utility Estimates for Racetrack Bettors," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 803-815, August.
    7. Richard Thalheimer & Mukhtar M. Ali, 1995. "The Demand for Parimutuel Horse Race Wagering and Attendance," Management Science, INFORMS, vol. 41(1), pages 129-143, January.
    8. Asch, Peter & Quandt, Richard E, 1987. "Efficiency and Profitability in Exotic Bets," Economica, London School of Economics and Political Science, vol. 54(215), pages 289-298, August.
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    Cited by:

    1. Martin Kukuk & Stefan Winter, 2008. "An Alternative Explanation of the Favorite-Longshot Bias," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 2(2), pages 79-96, September.
    2. Jaiho Chung & Joon Ho Hwang, 2010. "An Empirical Examination of the Parimutuel Sports Lottery Market versus the Bookmaker Market," Southern Economic Journal, John Wiley & Sons, vol. 76(4), pages 884-905, April.
    3. Alistair C. Bruce & Johnnie E. V. Johnson & John D. Peirson & Jiejun Yu, 2009. "An Examination of the Determinants of Biased Behaviour in a Market for State Contingent Claims," Economica, London School of Economics and Political Science, vol. 76(302), pages 282-303, April.
    4. W. David Walls & Kelly Busche, 2003. "Broken odds and the favourite-longshot bias in parimutuel betting: a direct test," Applied Economics Letters, Taylor & Francis Journals, vol. 10(5), pages 311-314, April.
    5. Marshall Gramm & Douglas H. Owens, 2006. "Efficiency in Pari‐Mutuel Betting Markets across Wagering Pools in the Simulcast Era," Southern Economic Journal, John Wiley & Sons, vol. 72(4), pages 926-937, April.
    6. Les Coleman, 2004. "New light on the longshot bias," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 315-326.
    7. Marshall Gramm & Douglas Owens, 2005. "Determinants of betting market efficiency," Applied Economics Letters, Taylor & Francis Journals, vol. 12(3), pages 181-185.
    8. Stefan Winter & Martin Kukuk, 2008. "Do horses like vodka and sponging? - On market manipulation and the favourite-longshot bias," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 75-87.

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