IDEAS home Printed from https://ideas.repec.org/a/jof/jforec/v24y2005i2p139-154.html
   My bibliography  Save this article

Forecasting outcomes in spread betting markets: can bettors use 'quarbs' to beat the book?

Author

Listed:
  • David Paton

    (Nottingham University Business School, UK)

  • Leighton Vaughan Williams

    (Nottingham Trent University, UK)

Abstract

In this paper, we examine a relatively novel form of gambling, spread (or index) betting that overlaps with practices in conventional financial markets. In this form of betting, a number of bookmakers quote bid-offer spreads about the result of some future event. Bettors may buy (sell) at the top (bottom) end of a spread. We hypothesize that the existence of an outlying spread may provide uninformed traders with forecasting information that can be used to develop improved trading strategies. Using data from a popular spread betting market in the United Kingdom, we find that the price obtaining at the market mid-point does indeed provide a better forecast of asset values than that implied in the outlying spread. We further show that this information can be used to develop trading strategies leading to returns that are consistently positive and superior to those from noise trading. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • David Paton & Leighton Vaughan Williams, 2005. "Forecasting outcomes in spread betting markets: can bettors use 'quarbs' to beat the book?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 139-154.
  • Handle: RePEc:jof:jforec:v:24:y:2005:i:2:p:139-154
    DOI: 10.1002/for.949
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1002/for.949
    File Function: Link to full text; subscription required
    Download Restriction: no

    File URL: https://libkey.io/10.1002/for.949?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
    2. repec:bla:jfinan:v:53:y:1998:i:1:p:385-401 is not listed on IDEAS
    3. MacKinnon, James G. & White, Halbert & Davidson, Russell, 1983. "Tests for model specification in the presence of alternative hypotheses : Some further results," Journal of Econometrics, Elsevier, vol. 21(1), pages 53-70, January.
    4. Schnytzer, Adi & Shilony, Yuval, 1995. "Inside Information in a Betting Market," Economic Journal, Royal Economic Society, vol. 105(431), pages 963-971, July.
    5. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
    6. Brown, William O & Sauer, Raymond D, 1993. "Does the Basketball Market Believe in the Hot Hand? Comment," American Economic Review, American Economic Association, vol. 83(5), pages 1377-1386, December.
    7. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    8. Copeland, Thomas E & Galai, Dan, 1983. "Information Effects on the Bid-Ask Spread," Journal of Finance, American Finance Association, vol. 38(5), pages 1457-1469, December.
    9. Woodland, Linda M & Woodland, Bill M, 1994. "Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-279, March.
    10. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    11. David Paton & Donald S. Siegel & Leighton Vaughan Williams, 2002. "A Policy Response To The E--Commerce Revolution: The Case Of Betting Taxation In The UK," Economic Journal, Royal Economic Society, vol. 112(480), pages 296-314, June.
    12. Leighton Vaughan Williams, 2001. "Can Bettors Win?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(1), pages 31-48, January.
    13. De Long, J Bradford & Shleifer, Andrei & Summers, Lawrence H & Waldmann, Robert J, 1991. "The Survival of Noise Traders in Financial Markets," The Journal of Business, University of Chicago Press, vol. 64(1), pages 1-19, January.
    14. 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 150-158, January.
    15. Shleifer, Andrei & Vishny, Robert W, 1997. "The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
    16. Michael Cain & David Law & David Peel, 2000. "The Favourite‐Longshot Bias and Market Efficiency in UK Football betting," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(1), pages 25-36, February.
    17. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
    18. Hurley, William & McDonough, Lawrence, 1995. "A Note on the Hayek Hypothesis and the Favorite-Longshot Bias in Parimutuel Betting," American Economic Review, American Economic Association, vol. 85(4), pages 949-955, September.
    19. Camerer, Colin F, 1989. "Does the Basketball Market Believe in the 'Hot Hand'?," American Economic Review, American Economic Association, vol. 79(5), pages 1257-1261, December.
    20. Vaughan Williams, Leighton, 1999. "Information Efficiency in Betting Markets: A Survey," Bulletin of Economic Research, Wiley Blackwell, vol. 51(1), pages 1-30, January.
    21. Gray, Philip K & Gray, Stephen F, 1997. "Testing Market Efficiency: Evidence from the NFL Sports Betting Market," Journal of Finance, American Finance Association, vol. 52(4), pages 1725-1737, September.
    22. 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 1141-1153, September.
    23. repec:bla:jfinan:v:43:y:1988:i:4:p:995-1008 is not listed on IDEAS
    24. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    25. Michael Cain & David Law & David Peel, 2003. "The Favourite‐Longshot Bias, Bookmaker Margins and Insider Trading in a Variety of Betting Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 55(3), pages 263-273, July.
    26. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
    27. Avery, Christopher & Chevalier, Judith, 1999. "Identifying Investor Sentiment from Price Paths: The Case of Football Betting," The Journal of Business, University of Chicago Press, vol. 72(4), pages 493-521, October.
    28. Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 29-59, Supplemen.
    29. Golec, Joseph & Tamarkin, Maurry, 1991. "The degree of inefficiency in the football betting market : Statistical tests," Journal of Financial Economics, Elsevier, vol. 30(2), pages 311-323, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Martin Spann & Bernd Skiera, 2009. "Sports forecasting: a comparison of the forecast accuracy of prediction markets, betting odds and tipsters," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(1), pages 55-72.
    2. Benjamin Waggoner & Daniel Wines & Brian P. Soebbing & Chad S. Seifried & Jean Michael Martinez, 2014. "“Hot Hand” in the National Basketball Association Point Spread Betting Market: A 34-Year Analysis," IJFS, MDPI, vol. 2(4), pages 1-12, November.
    3. Marshall, Ben R., 2009. "How quickly is temporary market inefficiency removed?," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 917-930, August.
    4. S Lessmann & M-C Sung & J E V Johnson, 2011. "Towards a methodology for measuring the true degree of efficiency in a speculative market," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(12), pages 2120-2132, December.
    5. Michael A. Smith & David Paton & Leighton Vaughan-Williams, 2004. "Costs, biases and betting markets: new evidence," Working Papers 2004/5, Nottingham Trent University, Nottingham Business School, Economics Division.
    6. David Paton & Donald S. Siegel & Leighton Vaughan Williams, 2009. "The Growth of Gambling and Prediction Markets: Economic and Financial Implications," Economica, London School of Economics and Political Science, vol. 76(302), pages 219-224, April.
    7. Bruno Deschamps, 2008. "Betting Markets Efficiency: Evidence From European Football," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 2(1), pages 66-76, May.
    8. Bruno Deschamps & Olivier Gergaud, 2007. "Efficiency in Betting Markets: Evidence from English Football," Journal of Prediction Markets, University of Buckingham Press, vol. 1(1), pages 61-73, February.
    9. Sperb, Luis Felipe Costa & Sung, Ming-Chien & Johnson, Johnnie E.V. & Ma, Tiejun, 2019. "Keeping a weather eye on prediction markets: The influence of environmental conditions on forecasting accuracy," International Journal of Forecasting, Elsevier, vol. 35(1), pages 321-335.
    10. Nikolaos Vlastakis & George Dotsis & Raphael N. Markellos, 2009. "How efficient is the European football betting market? Evidence from arbitrage and trading strategies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(5), pages 426-444.
    11. Hvattum, Lars Magnus & Arntzen, Halvard, 2010. "Using ELO ratings for match result prediction in association football," International Journal of Forecasting, Elsevier, vol. 26(3), pages 460-470, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philip W. S. Newall & Dominic Cortis, 2021. "Are Sports Bettors Biased toward Longshots, Favorites, or Both? A Literature Review," Risks, MDPI, vol. 9(1), pages 1-9, January.
    2. Jinook Jeong & Jee Young Kim & Yoon Jae Ro, 2019. "On the efficiency of racetrack betting market: a new test for the favourite-longshot bias," Applied Economics, Taylor & Francis Journals, vol. 51(54), pages 5817-5828, November.
    3. Nikolaos Vlastakis & George Dotsis & Raphael N. Markellos, 2009. "How efficient is the European football betting market? Evidence from arbitrage and trading strategies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(5), pages 426-444.
    4. Stekler, H.O. & Sendor, David & Verlander, Richard, 2010. "Issues in sports forecasting," International Journal of Forecasting, Elsevier, vol. 26(3), pages 606-621, July.
      • Herman O. Stekler & David Sendor & Richard Verlander, 2009. "Issues in Sports Forecasting," Working Papers 2009-002, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
    5. Jaiho Chung & Joon Ho Hwang, 2010. "An Empirical Examination of the Parimutuel Sports Lottery Market versus the Bookmaker Market," Southern Economic Journal, John Wiley & Sons, vol. 76(4), pages 884-905, April.
    6. Gross, Johannes & Rebeggiani, Luca, 2018. "Chance or Ability? The Efficiency of the Football Betting Market Revisited," MPRA Paper 87230, University Library of Munich, Germany.
    7. Montone, Maurizio, 2021. "Optimal pricing in the online betting market," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 344-363.
    8. Zhang, Chi & Thijssen, Jacco, 2022. "On sticky bookmaking as a learning device in horse-racing betting markets," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    9. Goto, Shingo & Yamada, Toru, 2023. "What drives biased odds in sports betting markets: Bettors’ irrationality and the role of bookmakers," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 252-270.
    10. Les Coleman, 2007. "Just How Serious is Insider Trading? An Evaluation using Thoroughbred Wagering Markets," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 1(1), pages 31-55, February.
    11. Kai Fischer & Justus Haucap, 2020. "Betting Market Efficiency in the Presence of Unfamiliar Shocks: The Case of Ghost Games during the Covid-19 Pandemic," CESifo Working Paper Series 8526, CESifo.
    12. Benjamin Waggoner & Daniel Wines & Brian P. Soebbing & Chad S. Seifried & Jean Michael Martinez, 2014. "“Hot Hand” in the National Basketball Association Point Spread Betting Market: A 34-Year Analysis," IJFS, MDPI, vol. 2(4), pages 1-12, November.
    13. Avery, Christopher & Chevalier, Judith, 1999. "Identifying Investor Sentiment from Price Paths: The Case of Football Betting," The Journal of Business, University of Chicago Press, vol. 72(4), pages 493-521, October.
    14. Ziemba, William, 2020. "Parimutuel betting markets: racetracks and lotteries revisited," LSE Research Online Documents on Economics 118873, London School of Economics and Political Science, LSE Library.
    15. Ray C. Fair & John F. Oster, 2007. "College Football Rankings and Market Efficiency," Journal of Sports Economics, , vol. 8(1), pages 3-18, February.
    16. Martin Kukuk & Stefan Winter, 2008. "An Alternative Explanation of the Favorite-Longshot Bias," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 2(2), pages 79-96, September.
    17. John Peirson & Michael A. Smith, 2010. "Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behavior," Southern Economic Journal, John Wiley & Sons, vol. 76(4), pages 976-992, April.
    18. Kai Fischer & Justus Haucap, 2022. "Home advantage in professional soccer and betting market efficiency: The role of spectator crowds," Kyklos, Wiley Blackwell, vol. 75(2), pages 294-316, May.
    19. David Forrest & Robert Simmons, 2008. "Sentiment in the betting market on Spanish football," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 119-126.
    20. Michael Sinkey & Trevon Logan, 2014. "Does the Hot Hand Drive the Market? Evidence from College Football Betting Markets," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 40(4), pages 583-603, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jof:jforec:v:24:y:2005:i:2:p:139-154. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/2966 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.