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The Liquidity Advantage of Quote-driven Markets: Evidence from the Betting Industry


Author Info

  • Raphael Flepp

    (Department of Business Administration, University of Zurich)

  • Stephan Nüesch

    (Department of Business Administration, University of Zurich)

  • Egon Franck

    (Department of Business Administration, University of Zurich)


This paper investigates the puzzling coexistence of the quote-driven market struc- ture characterized by traditional bookmakers and the order-driven market structure characterized by betting exchanges in the betting industry. Even though betting exchanges are considered as the superior business model due to less operational risk and lower information costs, bookmakers continue to be successful. We show that liquidity, which is only guaranteed at the bookmaker market, significantly improves the bookmakers price competitiveness. Using matched panel data of both book- maker and betting exchange odds for 17,682 soccer matches played worldwide, we find that a major bookmaker offers more favorable odds than a major betting ex- change in the early pre-play betting period and less favorable odds shortly before match start.

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Bibliographic Info

Paper provided by University of Zurich, Department of Business Administration (IBW) in its series Working Papers with number 342.

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Length: 24 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:zrh:wpaper:342

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Keywords: Market Structure; Market Performance; Liquidity; Betting Market;

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  2. Tarun Chordia, 2001. "Market Liquidity and Trading Activity," Journal of Finance, American Finance Association, American Finance Association, vol. 56(2), pages 501-530, 04.
  3. Egon Franck & Erwin Verbeek & Stephan Nüesch, 2013. "Inter-market Arbitrage in Betting," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 80(318), pages 300-325, 04.
  4. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, Elsevier, vol. 17(2), pages 223-249, December.
  5. Ruud H. Koning & Bart van Velzen, 2009. "Betting Exchanges: The Future of Sports Betting?," International Journal of Sport Finance, Fitness Information Technology, Fitness Information Technology, vol. 4(1), pages 42-62, February.
  6. Pope, Peter F & Peel, David A, 1989. "Information, Prices and Efficiency in a Fixed-Odds Betting Market," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 56(223), pages 323-41, August.
  7. Page, Lionel, 2009. "Is there an optimistic bias on betting markets?," Economics Letters, Elsevier, Elsevier, vol. 102(2), pages 70-72, February.
  8. Sylvain Friederich & Richard Payne, 2007. "Dealer Liquidity in an Auction Market: Evidence from the London Stock Exchange," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(522), pages 1168-1191, 07.
  9. de Jong,Frank & Rindi,Barbara, 2009. "The Microstructure of Financial Markets," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521687270.
  10. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2008. "Liquidity and market efficiency," Journal of Financial Economics, Elsevier, Elsevier, vol. 87(2), pages 249-268, February.
  11. David Forrest & Robert Simmons, 2008. "Sentiment in the betting market on Spanish football," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 40(1), pages 119-126.
  12. Madhavan, Ananth & Sofianos, George, 1998. "An empirical analysis of NYSE specialist trading," Journal of Financial Economics, Elsevier, Elsevier, vol. 48(2), pages 189-210, May.
  13. Davies, Mark & Pitt, Leyland & Shapiro, Daniel & Watson, Richard, 2005. " Five Technology Forces Revolutionize Worldwide Wagering," European Management Journal, Elsevier, Elsevier, vol. 23(5), pages 533-541, October.
  14. Karen Croxson & J. James Reade, 2011. "Exchange vs Dealers: A High-Frequency Analysis of In-Play Betting Prices," Discussion Papers, Department of Economics, University of Birmingham 11-19, Department of Economics, University of Birmingham.
  15. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
  16. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, Elsevier, vol. 3(3), pages 205-258, August.
  17. Â Egon Franck & Â Erwin Verbeek & Â Stephan Nuesch, . "Â Sentimental Preferences and the Organizational Regime of Betting Markets," Working Papers, University of Zurich, Institute for Strategy and Business Economics (ISU) 0089, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2010.
  18. Franck, Egon & Verbeek, Erwin & Nüesch, Stephan, 2010. "Prediction accuracy of different market structures -- bookmakers versus a betting exchange," International Journal of Forecasting, Elsevier, Elsevier, vol. 26(3), pages 448-459, July.
  19. Michael A. Smith & David Paton & Leighton Vaughan Williams, 2006. "Market Efficiency in Person-to-Person Betting," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 73(292), pages 673-689, November.
  20. Smith, Michael A. & Paton, David & Williams, Leighton Vaughan, 2009. "Do bookmakers possess superior skills to bettors in predicting outcomes?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 71(2), pages 539-549, August.
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