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On the timing of inside trades in a betting market

Author

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  • Adi Schnytzer
  • Yuval Shilony

Abstract

The paper presents a game-theoretical model to examine the equilibrium timing of insider trades in a market with a finite life span. An example of such a market is that for horse betting, where insiders must bet before the race or their information is of no value. We show that there is no equilibrium in pure strategies but that there is a unique, sub game perfect equilibrium in mixed strategies. The issue arises because waiting to bet may lead to information leaks whereas betting too soon may imply paying too high a price for the bet. We derive empirical hypotheses and test them.

Suggested Citation

  • Adi Schnytzer & Yuval Shilony, 2002. "On the timing of inside trades in a betting market," The European Journal of Finance, Taylor & Francis Journals, vol. 8(2), pages 176-186, June.
    • Handle: RePEc:taf:eurjfi:v:8:y:2002:i:2:p:176-186
    DOI: 10.1080/13518470110071164
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    References listed on IDEAS

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    1. Schnytzer, Adi & Shilony, Yuval, 1995. "Inside Information in a Betting Market," Economic Journal, Royal Economic Society, vol. 105(431), pages 963-971, July.
    2. Foster, F Douglas & Viswanathan, S, 1996. "Strategic Trading When Agents Forecast the Forecasts of Others," Journal of Finance, American Finance Association, vol. 51(4), pages 1437-1478, September.
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    Cited by:

    1. M. Sung & J. E. V. Johnson, 2010. "Revealing Weak‐Form Inefficiency in a Market for State Contingent Claims: The Importance of Market Ecology, Modelling Procedures and Investment Strategies," Economica, London School of Economics and Political Science, vol. 77(305), pages 128-147, January.
    2. 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.
    3. A. Schnytzer & V. Makropoulou & M. Lamers, 2012. "Pricing Decisions and Insider Trading in Horse Betting Markets," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/772, Ghent University, Faculty of Economics and Business Administration.

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