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What's the Difference between the Stockmarket and the Racetrack?

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  • D.J. Johnstone

    (University of Sydney)

Abstract

There are many anecdotes likening the stockmarket to betting, often voiced from the perspective of an inexperienced investor or gambler to whom the risks seem much the same in either marketplace. A fundamental aspect of the stockmarket that separates it from all forms of gambling is that a naive investor who carries a well diversified portfolio, and holds it long enough, is bound to win (based on historical evidence at least). In gambling markets, an unsophisticated player is bound to lose, the more so the longer he plays. For well informed or otherwise sophisticated traders, the racetrack and stockmarket are effectively analogous, in that both present opportunities to take money off less well informed players, albeit not so much that they lose interest. The stockmarket does not offer the recreational attractions of the racetrack, and must therefore return profits to most or all investors, at least in the long run, if they are to stay in the game.

Suggested Citation

  • D.J. Johnstone, 2007. "What's the Difference between the Stockmarket and the Racetrack?," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 1(2), pages 121-127, June.
  • Handle: RePEc:buc:jgbeco:v:1:y:2007:i:2:p:121-127
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    File URL: http://www.ubplj.org/index.php/jgbe/article/view/513
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    References listed on IDEAS

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    1. Robert A. Baade & Victor A. Matheson, 2001. "Home Run or Wild Pitch?," Journal of Sports Economics, , vol. 2(4), pages 307-327, November.
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    3. Dennis Coates & Brad R. Humphreys, 1999. "The growth effects of sport franchises, stadia, and arenas," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(4), pages 601-624.
    4. Robert Baade & Robert Baumann & Victor Matheson, 2005. "Selling the Big Game: Estimating the Economic Impact of Mega-Events through Taxable Sales," Working Papers 0510, College of the Holy Cross, Department of Economics.
    5. Robert Baade & Victor Matheson, 2005. "Have public finance principles been shut out in financing new sports facilities in the United States?," IASE Conference Papers 0527, International Association of Sports Economists.
    6. Dennis Coates & Brad R. Humphreys, 2001. "The Economic Consequences of Professional Sports Strikes and Lockouts," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 737-747, January.
    7. Dennis Coates & Brad R. Humphreys, 2002. "The Economic Impact of Postseason Play in Professional Sports," Journal of Sports Economics, , vol. 3(3), pages 291-299, August.
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    More about this item

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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