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Broken odds and the favourite-longshot bias in parimutuel betting: a direct test

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  • W. David Walls
  • Kelly Busche

Abstract

This research examines empirically the effect using broken odds - the rounded off odds reported by horse track operators - on statistical tests of market efficiency in parimutuel gambling. It finds that using rounded-off odds to test for market efficiency, instead of using the exact values, introduces a downward bias in the test statistics for favourite horses. Previous studies, because they relied on the rounded-off odds data, may have overstated the extent of the favourite-longshot bias in parimutuel wagering markets.

Suggested Citation

  • W. David Walls & Kelly Busche, 2003. "Broken odds and the favourite-longshot bias in parimutuel betting: a direct test," Applied Economics Letters, Taylor & Francis Journals, vol. 10(5), pages 311-314, April.
  • Handle: RePEc:taf:apeclt:v:10:y:2003:i:5:p:311-314
    DOI: 10.1080/13504850210147162
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    File URL: http://hdl.handle.net/10.1080/13504850210147162
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    Cited by:

    1. Les Coleman, 2004. "New light on the longshot bias," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 315-326.
    2. Jinook Jeong & Jee Young Kim & Yoon Jae Ro, 2017. "On the Efficiency of Racetrack Betting Market: A New Test for the Favorite-Longshot Bias," Working papers 2017rwp-106, Yonsei University, Yonsei Economics Research Institute.
    3. Anil Gulati & Shekar Shetty, 2007. "Empirical evidence of error in pricing of favorites and longshots in greyhound racing," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 31(1), pages 49-58, March.

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