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Are betting markets efficient? Evidence from European Football Championships

  • Alexis Direr

This article investigates the degree of efficiency of the European Football online betting market by using odds quoted by 12 bookmakers on 21 European championships over 11 years. We show that systematically picking out odds inferior to a threshold delivers a rate of return of 4.45% if best odds are selected across bookmakers and 2.78% if mean odds are used. This amounts to backing overwhelmingly favourites whose probability of winning exceeds 90%. Our results only exploit information contained in odds, are robust to the use of real-time data and different sample periods and hold under risk neutrality and expected utility preferences for realistic degrees of risk aversion. Transaction costs reduce profitability but only for small stake bets.

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File URL: http://hdl.handle.net/10.1080/00036846.2011.602010
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 3 (January)
Pages: 343-356

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Handle: RePEc:taf:applec:45:y:2013:i:3:p:343-356
DOI: 10.1080/00036846.2011.602010
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  1. Pope, Peter F & Peel, David A, 1989. "Information, Prices and Efficiency in a Fixed-Odds Betting Market," Economica, London School of Economics and Political Science, vol. 56(223), pages 323-41, August.
  2. Ioannis Asimakopoulos & John Goddard, 2004. "Forecasting football results and the efficiency of fixed-odds betting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(1), pages 51-66.
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  4. 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.
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  6. Cain, Michael & Law, David & Peel, David, 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.
  7. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-74, Spring.
  8. Herman O. Stekler & David Sendor & Richard Verlander, 2009. "Issues in Sports Forecasting," Working Papers 2009-002, The George Washington University, Department of Economics, Research Program on Forecasting.
  9. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101.
  10. Dixon, Mark J. & Pope, Peter F., 2004. "The value of statistical forecasts in the UK association football betting market," International Journal of Forecasting, Elsevier, vol. 20(4), pages 697-711.
  11. Shin, Hyun Song, 1991. "Optimal Betting Odds against Insider Traders," Economic Journal, Royal Economic Society, vol. 101(408), pages 1179-85, September.
  12. Tim Kuypers, 2000. "Information and efficiency: an empirical study of a fixed odds betting market," Applied Economics, Taylor & Francis Journals, vol. 32(11), pages 1353-1363.
  13. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  14. Richard E. Quandt, 1986. "Betting and Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 201-207.
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