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Herding in Imperfect Betting Markets with Inside Traders

Author

Listed:
  • Adi Schnytzer

    (Bar-Ilan University)

  • Avichai Snir

    (Bar-Ilan University)

Abstract

Herding is often considered as a phenomenon that drives prices of risky assets away from their equilibrium levels. In this paper we study the on-course UK and Australian horse betting markets. These are simple examples of imperfect markets for state-contingent assets. We provide strong evidence of herding behavior and show that the effects of herding are occasionally sufficient to render the markets inefficient even in the weak sense. Furthermore, the results demonstrate that traders with inside information are not always able to arbitrage away the effects of herding.

Suggested Citation

  • Adi Schnytzer & Avichai Snir, 2011. "Herding in Imperfect Betting Markets with Inside Traders," Working Papers 2011-08, Bar-Ilan University, Department of Economics.
    • Handle: RePEc:biu:wpaper:2011-08
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    File URL: https://www2.biu.ac.il/soc/ec/wp/2011-08.pdf
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    References listed on IDEAS

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    1. repec:bla:econom:v:43:y:1976:i:17:p:139-50 is not listed on IDEAS
    2. 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.
    3. Busche, Kelly & Hall, Christopher D, 1988. "An Exception to the Risk Preference Anomaly," The Journal of Business, University of Chicago Press, vol. 61(3), pages 337-346, July.
    4. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 797-817.
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