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Exchange vs Dealers: A High-Frequency Analysis of In-Play Betting Prices

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Author Info

  • Karen Croxson
  • J. James Reade

Abstract

We conduct the first high-frequency comparison of pricing behaviour in betting markets making use of a novel dataset of prices from the UK's two largest bookmakers and the world's largest betting exchange. We investigate price competitiveness, finding that the betting exchange structure offers customers superior returns and substantial liquidity. Given the persistence of large bookmakers, we speculate that switching costs (e.g. learning costs) must be significant. We also compare information arrival in betting markets across these two market structures. We find some support for the hypothesis that the betting exchange leads price discovery, with traditional bookmakers following.

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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/11-19.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 11-19.

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Length: 45 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:bir:birmec:11-19

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Related research

Keywords: Information; market efficiency; gambling;

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References

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  1. Karen Croxson & J. James Reade, 2011. "Information and Efficiency: Goal Arrival in Soccer Betting," Discussion Papers 11-01, Department of Economics, University of Birmingham.
  2. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  3. Egon Franck & Erwin Verbeek & Stephan Nüesch, 2008. "Prediction Accuracy of Different Market Structures – Bookmakers versus a Betting Exchange," Working Papers 0096, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2009.
  4. Wolfers, Justin & Zitzewitz, Eric, 2004. "Prediction Markets," Research Papers 1854, Stanford University, Graduate School of Business.
  5. Woodland, Linda M & Woodland, Bill M, 1994. " Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-79, March.
  6. Michael A. Smith & David Paton & Leighton Vaughan Williams, 2006. "Market Efficiency in Person-to-Person Betting," Economica, London School of Economics and Political Science, vol. 73(292), pages 673-689, November.
  7. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, October.
  8. Bruno Deschamps & Olivier Gergaud, 2007. "Efficiency in Betting Markets: Evidence from English Football," Journal of Prediction Markets, University of Buckingham Press, vol. 1(1), pages 61-73, February.
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Cited by:
  1. Raphael Flepp & Stephan Nüesch & Egon Franck, 2013. " The Liquidity Advantage of Quote-driven Markets: Evidence from the Betting Industry," Working Papers 342, University of Zurich, Department of Business Administration (IBW).
  2. J. James Reade & Sachiko Akie, 2013. "Using Forecasting to Detect Corruption in International Football," Working Papers 2013-005, The George Washington University, Department of Economics, Research Program on Forecasting.

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