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Measuring the Extent of Inside Trading in Horse Betting Markets

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Author Info

  • Adi Schnytzer

    () (Department of Economics, Bar Ilan University)

  • Martien Lamers

    () (Department of Financial Economics, Ghent University)

  • Vasiliki Makropoulou

    () (Utrecht School of Economics, Utrecht University)

Abstract

This paper develops a theoretical model that examines the optimal price setting by on-course bookmakers in the racetrack betting market. The model suggests that opening prices should include a premium that compensates bookmakers for the risk that insiders will account for private information and exploit any mis-pricing made by the bookmakers. The model is an extension of the model developed by Makropoulou and Markellos (2007) for football betting to the racetrack betting market. Using an extensive dataset and performing Monte Carlo simulations to calculate the potential value of new information, we measure insider trading in the Australian racetrack betting market.

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File URL: http://www.biu.ac.il/soc/ec/wp/2009-10.pdf
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Bibliographic Info

Paper provided by Department of Economics, Bar-Ilan University in its series Working Papers with number 2009-10.

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Date of creation: Apr 2009
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Handle: RePEc:biu:wpaper:2009-10

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Postal: Faculty of Social Sciences, Bar Ilan University 52900 Ramat-Gan
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Web page: http://econ.biu.ac.il
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Cited by:
  1. Schnytzer, Adi & Lamers, Martien & Makropoulou, Vasiliki, 2010. "The impact of insider trading on forecasting in a bookmakers' horse betting market," International Journal of Forecasting, Elsevier, vol. 26(3), pages 537-542, July.
  2. A. Schnytzer & V. Makropoulou & M. Lamers, 2012. "Pricing Decisions and Insider Trading in Horse Betting Markets," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/772, Ghent University, Faculty of Economics and Business Administration.

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