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Searching for Positive Returns at the Track: A Multinomial Logit Model for Handicapping Horse Races

Author

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  • Ruth N. Bolton

    (Department of Marketing & Economic Analysis, Faculty of Business, University of Alberta, Edmonton, Alberta, Canada T6G 2R6)

  • Randall G. Chapman

    (Department of Marketing & Economic Analysis, Faculty of Business, University of Alberta, Edmonton, Alberta, Canada T6G 2R6)

Abstract

This paper investigates fundamental investment strategies to detect and exploit the public's systematic errors in horse race wager markets. A handicapping model is developed and applied to win-betting in the pari-mutuel system. A multinomial logit model of the horse racing process is posited and estimated on a data base of 200 races. A recently developed procedure for exploiting the information content of rank ordered choice sets is employed to obtain more efficient parameter estimates. The variables in this discrete choice probability model include horse and jockey characteristics, plus several race-specific features. Hold-out sampling procedures are employed to evaluate wagering strategies. A wagering strategy that involves unobtrusive bets, with a side constraint eliminating long-shot betting, appears to offer the promise of positive expected returns, even in the presence of the typically large track take encountered at Thoroughbred racing events.

Suggested Citation

  • Ruth N. Bolton & Randall G. Chapman, 1986. "Searching for Positive Returns at the Track: A Multinomial Logit Model for Handicapping Horse Races," Management Science, INFORMS, vol. 32(8), pages 1040-1060, August.
  • Handle: RePEc:inm:ormnsc:v:32:y:1986:i:8:p:1040-1060
    DOI: 10.1287/mnsc.32.8.1040
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    File URL: http://dx.doi.org/10.1287/mnsc.32.8.1040
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    Keywords

    multinomial logit model; horse race wagering; stochastic utility model; ranked choice set data; discrete choice modeling;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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