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Risk management in the shadow economy: Evidence from the sport betting market

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  • Arscott, Robert

Abstract

I use the market for college football point spread gambling as a laboratory for assessing risk management activity among illegal firms. Offshore bookmakers employ pricing policies that reflect a book balancing objective whereas legal bookmakers seldom do so. Pricing policies that prioritize book balance lower the variance of bookmakers’ expected cash flow, but at the cost of lower profit. Due to the legal and moral hazards involved in operating an illegal enterprise, these firms rely on internal financing. Consequently, illegal bookmakers behave as mean–variance optimizers as opposed to legal bookmakers who appear to behave as profit maximizers.

Suggested Citation

  • Arscott, Robert, 2022. "Risk management in the shadow economy: Evidence from the sport betting market," Journal of Corporate Finance, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:corfin:v:77:y:2022:i:c:s092911992200150x
    DOI: 10.1016/j.jcorpfin.2022.102307
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    References listed on IDEAS

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    8. Strumpf, Koleman, 2003. "Illegal Sports Bookmakers," Working Papers 181, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
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    Cited by:

    1. Robert Arscott, 2023. "Market Efficiency and Censoring Bias in College Football Gambling," Journal of Sports Economics, , vol. 24(5), pages 664-689, June.

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    More about this item

    Keywords

    Risk management; Underground economy; Gambling;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • Z20 - Other Special Topics - - Sports Economics - - - General

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