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The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market

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  • 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 considers the impact of insider trading on forecasting in a betting market when prices are set by bookmakers. We base our analysis on Schnytzer, Lamers and Makropoulou (2008) who showed that inside trading in the 1997-1998 Australian racetrack betting market represents somewhere between 20 and 30 percent of all trading in this market. They show that the presence of insiders leads opening prices to deviate from true winning probabilities. Under these circumstances, forecasting of race outcomes should take into account an estimate of the extent of insider trading per horse. We show that the added value of a measure of insider trading for profitable betting is sufficient to reduce the losses when only prices are taken into account. Since the only variables taken into account in either Schnytzer, Lamers and Makropoulou (2008) or this paper are price data, this is tantamount to a demonstration that the market is weak-form efficient.

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File URL: http://www.biu.ac.il/soc/ec/wp/2009-11.pdf
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Bibliographic Info

Paper provided by Department of Economics, Bar-Ilan University in its series Working Papers with number 2009-11.

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Date of creation: Apr 2009
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Handle: RePEc:biu:wpaper:2009-11

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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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  1. Adi Schnytzer & Martien Lamers & Vasiliki Makropoulou, 2009. "Measuring the Extent of Inside Trading in Horse Betting Markets," Working Papers 2009-10, Department of Economics, Bar-Ilan University.
  2. Schnytzer, Adi & Shilony, Yuval, 1995. "Inside Information in a Betting Market," Economic Journal, Royal Economic Society, vol. 105(431), pages 963-71, July.
  3. Adi Schnytzer & Avichai Snir, 2008. "Herding in Imperfect Betting Markets with Inside Traders," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 2(2), pages 1-15, September.
  4. Shin, Hyun Song, 1991. "Optimal Betting Odds against Insider Traders," Economic Journal, Royal Economic Society, vol. 101(408), pages 1179-85, September.
  5. Shin, Hyun Song, 1992. "Prices of State Contingent Claims with Insider Traders, and the Favourite-Longshot Bias," Economic Journal, Royal Economic Society, vol. 102(411), pages 426-35, March.
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