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Efficient Market Adjustment of Odds Prices to Reflect Track Biases

Author

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  • Brian R. Canfield

    (Faculty of Commerce and Business Administration, University of British Columbia, Vancouver, British Columbia, Canada V6T 1Y8)

  • Bruce C. Fauman

    (Faculty of Commerce and Business Administration, University of British Columbia, Vancouver, British Columbia, Canada V6T 1Y8)

  • William T. Ziemba

    (Faculty of Commerce and Business Administration, University of British Columbia, Vancouver, British Columbia, Canada V6T 1Y8)

Abstract

Biases that reflect the economic worth of uncertain contingent claims occur in many financial markets. Parimutuel betting at racetracks is one such market with ample data to investigate such biases. The total wagering market is about $10 billion per year in North America. The configuration of racetracks leads to an advantage for horses breaking from post positions near the rail, especially for tracks with small circumferences. Can the bettor make profits with knowledge of this bias? To investigate, we utilize data from 3,345 races involving over $300 million in wagers from 1982, 1983 and 1984 on win and exotic bets at Exhibition Park in Vancouver where this bias should be strong. The results indicate that the bias exists but the prices adjust to fully negate the potential gains from the bias.

Suggested Citation

  • Brian R. Canfield & Bruce C. Fauman & William T. Ziemba, 1987. "Efficient Market Adjustment of Odds Prices to Reflect Track Biases," Management Science, INFORMS, vol. 33(11), pages 1428-1439, November.
  • Handle: RePEc:inm:ormnsc:v:33:y:1987:i:11:p:1428-1439
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    File URL: http://dx.doi.org/10.1287/mnsc.33.11.1428
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    References listed on IDEAS

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    1. Ian I. Mitroff, 1972. "The Myth of Objectivity OR Why Science Needs a New Psychology of Science," Management Science, INFORMS, vol. 18(10), pages 613-618, June.
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    Cited by:

    1. Ma, Tiejun & Tang, Leilei & McGroarty, Frank & Sung, Ming-Chien & Johnson, Johnnie E. V, 2016. "Time is money: Costing the impact of duration misperception in market prices," European Journal of Operational Research, Elsevier, vol. 255(2), pages 397-410.

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    Keywords

    efficient markets; racetrack wagering;

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