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An Exploration of Inefficiency in Market for State Contingent Claims

Author

Listed:
  • Alistair, B.
  • Johnson
  • J.E.V.

Abstract

This paper apportions responsability for inefficency in a market for state contingent claims between market makers and traders. We specifically examine the origins of a frequently observed distortion in the market for bets in horseraces- the favorite- longshot bias. Previous studies rationalise the bias in terms of traders' (bettors) or market makers' (bookmakers) behaviour. Employing hitherto unavailable data we conduct a parallel logistic analysis of parimutuel and bookmakers markets, which offers an uniquivocal basis for identifying the origin of the bias.

Suggested Citation

  • Alistair, B. & Johnson & J.E.V., 1999. "An Exploration of Inefficiency in Market for State Contingent Claims," Papers 99-144, University of Southampton - Department of Accounting and Management Science.
    • Handle: RePEc:fth:sotoam:99-144
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    More about this item

    Keywords

    EFFICIENCY ; UNCERTAINTY ; INFORMATION;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D60 - Microeconomics - - Welfare Economics - - - General

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