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Forecasting horse race outcomes: New evidence on odds bias in UK betting markets

  • Smith, Michael A.
  • Vaughan Williams, Leighton

Using bookmaker odds data derived from ten seasons of Flat Racing in the UK, we confirm the existence of a favourite-longshot bias; i.e., the expected return to level stake bets placed at shorter odds exceeds that to level stake bets placed at longer odds. We find, however, that the degree of bias declines significantly over the period studied, with a lower bias being evident in the five years after 2000 than in the five preceding seasons. These findings have important implications for methods of forecasting race outcomes that include odds as an endogenous variable. In particular, we conclude that the parameters of the bias need to be re-estimated through time in order to generate the most efficient forecasts based on the prevailing odds distributions.

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File URL: http://www.sciencedirect.com/science/article/B6V92-4YB84HV-2/2/d215b549db44b8f4b2dcf201e2c05c9d
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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 26 (2010)
Issue (Month): 3 (July)
Pages: 543-550

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Handle: RePEc:eee:intfor:v:26:y::i:3:p:543-550
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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  1. Crafts, Nicholas F R, 1985. "Some Evidence of Insider Knowledge in Horse Race Betting in Britain," Economica, London School of Economics and Political Science, vol. 52(27), pages 295-304, August.
  2. Shin, Hyun Song, 1993. "Measuring the Incidence of Insider Trading in a Market for State-Contingent Claims," Economic Journal, Royal Economic Society, vol. 103(420), pages 1141-53, September.
  3. Snyder, Wayne W, 1978. "Horse Racing: Testing the Efficient Markets Model," Journal of Finance, American Finance Association, vol. 33(4), pages 1109-18, September.
  4. John Peirson, 2008. "Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behaviour," Studies in Economics 0819, School of Economics, University of Kent.
  5. 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.
  6. Law, David & Peel, David A, 2002. "Insider Trading, Herding Behaviour and Market Plungers in the British Horse-Race Betting Market," Economica, London School of Economics and Political Science, vol. 69(274), pages 327-38, May.
  7. Dowie, Jack A, 1976. "On the Efficiency and Equity of Betting Markets," Economica, London School of Economics and Political Science, vol. 43(17), pages 139-50, May.
  8. Vaughan Williams, Leighton, 1999. "Information Efficiency in Betting Markets: A Survey," Bulletin of Economic Research, Wiley Blackwell, vol. 51(1), pages 1-30, January.
  9. Shin, Hyun Song, 1991. "Optimal Betting Odds against Insider Traders," Economic Journal, Royal Economic Society, vol. 101(408), pages 1179-85, September.
  10. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
  11. Williams, Leighton Vaughan & Paton, David, 1997. "Why Is There a Favourite-Longshot Bias in British Racetrack Betting Markets?," Economic Journal, Royal Economic Society, vol. 107(440), pages 150-58, January.
  12. Les Coleman, 2004. "New light on the longshot bias," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 315-326.
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