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Prediction accuracy of different market structures -- bookmakers versus a betting exchange

  • Franck, Egon
  • Verbeek, Erwin
  • Nüesch, Stephan

There is a well-established body of literature on separately testing the prediction power of different betting market settings. This paper provides an inter-market comparison of the forecasting accuracy of bookmakers and a major betting exchange. Employing a dataset covering all football matches played in the major leagues of the "Big Five" (England, France, Germany, Italy, Spain) during three seasons (5478 games in total), we find evidence that the betting exchange provides more accurate predictions of a given event than bookmakers. A simple betting strategy of selecting bets for which bookmakers offer lower probabilities (higher odds) than the betting exchange generates above average, and in some cases even positive returns.

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File URL: http://www.sciencedirect.com/science/article/B6V92-4YJ1417-1/2/5b550cd8146c2ec80ec8c509ec4ef14a
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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 26 (2010)
Issue (Month): 3 (July)
Pages: 448-459

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Handle: RePEc:eee:intfor:v:26:y::i:3:p:448-459
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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  1. 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, 04.
  2. Forrest, David & Goddard, John & Simmons, Robert, 2005. "Odds-setters as forecasters: The case of English football," International Journal of Forecasting, Elsevier, vol. 21(3), pages 551-564.
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  6. Egon Franck & Erwin Verbeek & Stephan Nüesch, 2011. "Sentimental Preferences and the Organizational Regime of Betting Markets," Southern Economic Journal, Southern Economic Association, vol. 78(2), pages 502-518, October.
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  13. Ioannis Asimakopoulos & John Goddard, 2004. "Forecasting football results and the efficiency of fixed-odds betting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(1), pages 51-66.
  14. 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.
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