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Measuring the Extent of Inside Trading in Horse Betting Markets

  • Adi Schnytzer

    (Bar-Ilan University)

  • Martien Lamers

    (Ghent University)

  • Vasiliki Makropoulou

    (Athens University of Economics and Buisness)

This paper develops a theoretical framework for and models optimal price setting by on-course bookmakers in the racetrack betting market. This framework 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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Article provided by University of Buckingham Press in its journal Journal of Gambling Business and Economics.

Volume (Year): 4 (2010)
Issue (Month): 2 (September)
Pages: 21-41

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Handle: RePEc:buc:jgbeco:v:4:y:2010:i:2:p:21-41
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