Prices of State Contingent Claims with Insider Traders, and the Favourite-Longshot Bias
This paper examines the pricing of state contingent claims in the presence of insider traders. The specific setting is the market for bets in a horse race in which bookmakers compete in prices in anticipation of betting from a group of bettors, some of whom have insider information. The author identifies a condition which is necessary and sufficient for the so called "favorite-bias" in which, the prices on the favorites understate the winning changes of these horses relatively less than the prices on the longshots. The robustness of this result is examined in a more general framework, and the bias is shown to survive in a generalized form. Copyright 1992 by Royal Economic Society.
Volume (Year): 102 (1992)
Issue (Month): 411 (March)
|Contact details of provider:|| Postal: |
Phone: +44 1334 462479
Web page: http://www.res.org.uk/
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishers.co.uk/asp/journal.asp?ref=0013-0133|
When requesting a correction, please mention this item's handle: RePEc:ecj:econjl:v:102:y:1992:i:411:p:426-35. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.