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Profiting On Inefficiencies In Betting Derivative Markets: The Case Of Uefa Euro 2012

Author

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  • Dominic Cortis
  • Steve Hales
  • Frank Bezzina

Abstract

This paper investigates whether it is possible to profit from market inefficiencies on betting exchanges during short tournaments. We describe how a Monte Carlo simulation method, with an inbuilt noise parameter applied on '1X2' markets, can be used to determine odds for derivative markets. In cases of mismatch between model and market odds, a modified Kelly strategy is proposed to determine the percentage of own funds placed against the market. When this proposal is applied to the UEFA European Nations association football tournament 2012, two important findings emerge: (a) a profit of circa 12% of allocated funds was generated, and (b) the profit is not contingent on the noise parameter, thus indicating the possibility of arbitrage between different betting markets. The proposed method can be extended to other sports provided the competition consists of a group stage held over a short period of time.

Suggested Citation

  • Dominic Cortis & Steve Hales & Frank Bezzina, 2013. "Profiting On Inefficiencies In Betting Derivative Markets: The Case Of Uefa Euro 2012," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 7(1), pages 39-51.
  • Handle: RePEc:buc:jgbeco:v:7:y:2013:i:1:p:39-51
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    File URL: http://www.ubplj.org/index.php/jgbe/article/view/597
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    References listed on IDEAS

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    1. E. W. Piotrowski & M. Schroeder, 2007. "Kelly criterion revisited: optimal bets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 57(2), pages 201-203, May.
    2. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    3. Michael A. Smith & David Paton & Leighton Vaughan Williams, 2006. "Market Efficiency in Person-to-Person Betting," Economica, London School of Economics and Political Science, vol. 73(292), pages 673-689, November.
    4. Steven D. Levitt, 2004. "Why are gambling markets organised so differently from financial markets?," Economic Journal, Royal Economic Society, vol. 114(495), pages 223-246, April.
    5. Nikolaos Vlastakis & George Dotsis & Raphael N. Markellos, 2009. "How efficient is the European football betting market? Evidence from arbitrage and trading strategies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(5), pages 426-444.
    6. Ruud H. Koning & Bart van Velzen, 2009. "Betting Exchanges: The Future of Sports Betting?," International Journal of Sport Finance, Fitness Information Technology, vol. 4(1), pages 42-62, February.
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    Cited by:

    1. Dominic Cortis, 2015. "Expected Values And Variances In Bookmaker Payouts: A Theoretical Approach Towards Setting Limits On Odds," Journal of Prediction Markets, University of Buckingham Press, vol. 9(1), pages 1-14.

    More about this item

    Keywords

    Euro 2012; Arbitrage; Betting; Monte Carlo; Betfair; Modeling;

    JEL classification:

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

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