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Efficiency characteristics of a market for state contingent claims

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  • Alistair Bruce
  • Johnnie Johnson

Abstract

This paper concludes that a market for state-contingent claims (UK horserace betting) displays evidence of pervasive but heterogeneous forms of inefficiency, in significant contrast to earlier investigations. Using hitherto unavailable data, comparison of notional returns implicit in parallel sets of bookmaker and parimutuel odds identifies inefficiency in terms of zones of distinct but contrasting forms of cross-;market returns differential. The inefficiency is rationalized in terms of both buyer and supplier behaviour; its durability is explained in terms of limited arbitrage opportunities.

Suggested Citation

  • Alistair Bruce & Johnnie Johnson, 2001. "Efficiency characteristics of a market for state contingent claims," Applied Economics, Taylor & Francis Journals, vol. 33(13), pages 1751-1754.
  • Handle: RePEc:taf:applec:v:33:y:2001:i:13:p:1751-1754
    DOI: 10.1080/00036840110052785
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    Cited by:

    1. Marco Ottaviani & Peter Norman Sorensen, 2010. "Noise, Information, and the Favorite-Longshot Bias in Parimutuel Predictions," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 58-85, February.

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