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Pari-mutuel betting markets: racetracks and lotteries revisited

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  • Ziemba, William T.

Abstract

This survey discusses the state of the art in research in racetrack and lottery investment markets. Market efficiency and the pricing of various wagers are studied along with new developments since the Thaler & Ziemba (1988) review. The weak form inefficient market pricing approach using stochastic programming optimization models changed racetrack betting from handicapping to a financial market allowing professional syndicates to operate as hedge funds. Topics discussed include arbitrage and risk arbitrage, syndicates, betting exchange rebates, behavioral biases, and fundamental and mispricing information in racetrack and lottery markets. Similar models can be used to successfully trade stock market anomalies. Supplemental Materials are included online.

Suggested Citation

  • Ziemba, William T., 2023. "Pari-mutuel betting markets: racetracks and lotteries revisited," LSE Research Online Documents on Economics 120846, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:120846
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    File URL: https://researchonline.lse.ac.uk/id/eprint/120846/
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    References listed on IDEAS

    as
    1. Donald B. Hausch & William T. Ziemba & Mark Rubinstein, 2008. "Efficiency Of The Market For Racetrack Betting," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 38, pages 373-390, World Scientific Publishing Co. Pte. Ltd..
    2. Donald B. Hausch & William T. Ziemba, 1985. "Transactions Costs, Extent of Inefficiencies, Entries and Multiple Wagers in a Racetrack Betting Model," Management Science, INFORMS, vol. 31(4), pages 381-394, April.
    3. Donald B. Hausch & Victor S. Y. Lo & William T. Ziemba, 2008. "Introduction to the Efficiency of Racetrack Betting Markets in England," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 51, pages 529-531, World Scientific Publishing Co. Pte. Ltd..
    4. Ali, Mukhtar M, 1979. "Some Evidence of the Efficiency of a Speculative Market," Econometrica, Econometric Society, vol. 47(2), pages 387-392, March.
    5. Martin Weitzman, 2008. "Utility Analysis And Group Behavior An Empirical Study," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 9, pages 47-55, World Scientific Publishing Co. Pte. Ltd..
    6. 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.
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    Cited by:

    1. Yang, Liu & Lee, Eunmi Tatum, 2025. "Why does good news increase stock price crash risk: An explanation based on the gambling channel," Journal of Behavioral and Experimental Finance, Elsevier, vol. 47(C).

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    Keywords

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    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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