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Prediction Accuracy of Different Market Structures – Bookmakers versus a Betting Exchange

  • Egon Franck

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Erwin Verbeek

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Stephan Nüesch

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

There is a well-established literature on separately testing the prediction power of different betting market settings. This paper provides an inter-market comparison of the forecasting accuracy between bookmakers and a major betting exchange. Employing a dataset covering all football matches played in the major leagues of the “Big Five” (England, France, Germany, Italy, Spain) during three seasons (5478 games in total), we find evidence that the betting exchange provides more accurate predictions of the same underlying event than bookmakers. A simple betting strategy of selecting bets for which bookmakers offer lower probabilities(higher odds) than the bet exchange generates above average and, in some cases, even positive returns.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/96_ISU_full.pdf
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0096.

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Length: 25 pages
Date of creation: 2008
Date of revision: 2009
Publication status: Forthcoming International Journal of Forecasting
Handle: RePEc:iso:wpaper:0096
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  1. Ioannis Asimakopoulos & John Goddard, 2004. "Forecasting football results and the efficiency of fixed-odds betting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(1), pages 51-66.
  2. repec:reg:rpubli:259 is not listed on IDEAS
  3. Forsythe, Robert & Forrest Nelson & George R. Neumann & Jack Wright, 1992. "Anatomy of an Experimental Political Stock Market," American Economic Review, American Economic Association, vol. 82(5), pages 1142-61, December.
  4. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
  5. Dixon, Mark J. & Pope, Peter F., 2004. "The value of statistical forecasts in the UK association football betting market," International Journal of Forecasting, Elsevier, vol. 20(4), pages 697-711.
  6. Karen Croxson & J. James Reade, 2014. "Information and Efficiency: Goal Arrival in Soccer Betting," Economic Journal, Royal Economic Society, vol. 124(575), pages 62-91, 03.
  7. Martin Spann & Bernd Skiera, 2003. "Internet-Based Virtual Stock Markets for Business Forecasting," Management Science, INFORMS, vol. 49(10), pages 1310-1326, October.
  8. Michael A. Smith & David Paton & Leighton Vaughan Williams, 2006. "Market Efficiency in Person-to-Person Betting," Economica, London School of Economics and Political Science, vol. 73(292), pages 673-689, November.
  9. Boulier, Bryan L. & Stekler, H. O., 2003. "Predicting the outcomes of National Football League games," International Journal of Forecasting, Elsevier, vol. 19(2), pages 257-270.
  10. Steven D. Levitt, 2004. "Why are gambling markets organised so differently from financial markets?," Economic Journal, Royal Economic Society, vol. 114(495), pages 223-246, 04.
  11. David Forrest & Robert Simmons, 2008. "Sentiment in the betting market on Spanish football," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 119-126.
  12. Forrest, David & Goddard, John & Simmons, Robert, 2005. "Odds-setters as forecasters: The case of English football," International Journal of Forecasting, Elsevier, vol. 21(3), pages 551-564.
  13. Dobson,Stephen & Goddard,John, 2011. "The Economics of Football," Cambridge Books, Cambridge University Press, number 9780521517140.
  14. Egon Franck & Erwin Verbeek & Stephan Nüesch, 2011. "Sentimental Preferences and the Organizational Regime of Betting Markets," Southern Economic Journal, Southern Economic Association, vol. 78(2), pages 502-518, October.
  15. Berg, Joyce E. & Nelson, Forrest D. & Rietz, Thomas A., 2008. "Prediction market accuracy in the long run," International Journal of Forecasting, Elsevier, vol. 24(2), pages 285-300.
  16. Cain, Michael & Law, David & Peel, David, 2000. "The Favourite-Longshot Bias and Market Efficiency in UK Football Betting," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(1), pages 25-36, February.
  17. Martin Spann & Bernd Skiera, 2009. "Sports forecasting: a comparison of the forecast accuracy of prediction markets, betting odds and tipsters," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(1), pages 55-72.
  18. Vaughan Williams, Leighton, 1999. "Information Efficiency in Betting Markets: A Survey," Bulletin of Economic Research, Wiley Blackwell, vol. 51(1), pages 1-30, January.
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