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'Quarbs' and Efficiency in Spread Betting Markets: can you beat the book?

Listed author(s):
  • Paton, David

    (Nottingham University Business School)

  • Leighton Vaughan Williams

    (Nottingham Trent University)

In this paper, we examine a relatively novel form of gambling, index (or spread) betting, that mirrors (and indeed overlaps with) practices in conventional financial markets. In this form of betting, a number of bookmakers quote a bid-offer spread about the result of some future event, and bettors are invited to buy (sell) at the top (bottom) end of the quoted spreads. We hypothesise that the existence of an outlying spread may provide uninformed traders with information that can be used to develop improved trading strategies. Using conditional moment tests on data from a popular spread betting market in the United Kingdom, we find that in the presence of a number of price-setters, the market mid-point is indeed a better predictor of asset values than the outlying price. We further show that this information can be used to develop trading strategies that lead to returns that are consistently positive and superior to those from noise trading and, in some cases, significantly so.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 155.

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Date of creation: 29 Aug 2002
Handle: RePEc:ecj:ac2002:155
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