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Efficiency Of The Market For Racetrack Betting

In: Efficiency Of Racetrack Betting Markets

Author

Listed:
  • DONALD B. HAUSCH

    (Northwestern University, USA)

  • WILLIAM T. ZIEMBA

    (University of British Columbia, Canada)

  • MARK RUBINSTEIN

    (University of California, Berkeley, USA)

Abstract

Many racetrack bettors have systems. Since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature. Fundamental strategies utilize past data available from racing forms, special sources, etc. to “handicap” races. The investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take. Technical systems require less information and only utilize current betting data. They attempt to find inefficiencies in the “market” and bet on such “overlays” when they have positive expected value. Previous studies and our data confirm that for win bets these inefficiencies, which exist for underbet favorites and overbet longshots, are not sufficiently great to result in positive profits. This paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense. Estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations. Since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program. Side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple. The system was tested on data from Santa Anita and Exhibition Park using exact and approximate solutions (that make the system operational at the track given the limited time available for placing bets) and found to produce substantial positive profits. A model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies.

Suggested Citation

  • Donald B. Hausch & William T. Ziemba & Mark Rubinstein, 2008. "Efficiency Of The Market For Racetrack Betting," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 38, pages 373-390, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789812819192_0038
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    Citations

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    Cited by:

    1. Matej Uhr'in & Gustav v{S}ourek & Ondv{r}ej Hub'av{c}ek & Filip v{Z}elezn'y, 2021. "Optimal sports betting strategies in practice: an experimental review," Papers 2107.08827, arXiv.org.
    2. Zhang, Chi & Thijssen, Jacco, 2022. "On sticky bookmaking as a learning device in horse-racing betting markets," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    3. Ziemba, William T., 2023. "Pari-mutuel betting markets: racetracks and lotteries revisited," LSE Research Online Documents on Economics 120846, London School of Economics and Political Science, LSE Library.

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