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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Egon Franck & Erwin Verbeek & Stephan Nüesch, 2008. "Prediction Accuracy of Different Market Structures – Bookmakers versus a Betting Exchange," Working Papers 0096, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2009.
  • Handle: RePEc:iso:wpaper:0096
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    References listed on IDEAS

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    1. repec:reg:rpubli:259 is not listed on IDEAS
    2. 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.
    3. Martin Spann & Bernd Skiera, 2003. "Internet-Based Virtual Stock Markets for Business Forecasting," Management Science, INFORMS, vol. 49(10), pages 1310-1326, October.
    4. 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, March.
    5. 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.
    6. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
    7. 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.
    8. David Forrest & Robert Simmons, 2008. "Sentiment in the betting market on Spanish football," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 119-126.
    9. 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.
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    11. 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.
    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. 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.
    14. Vaughan Williams, Leighton, 1999. "Information Efficiency in Betting Markets: A Survey," Bulletin of Economic Research, Wiley Blackwell, vol. 51(1), pages 1-30, January.
    15. 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.
    16. 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.
    17. 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, April.
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    Citations

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    Cited by:

    1. Karen Croxson & J. James Reade, 2011. "Exchange vs Dealers: A High-Frequency Analysis of In-Play Betting Prices," Discussion Papers 11-19, Department of Economics, University of Birmingham.
    2. Sung, Ming-Chien & McDonald, David C.J. & Johnson, Johnnie E.V., 2016. "Probabilistic forecasting with discrete choice models: Evaluating predictions with pseudo-coefficients of determination," European Journal of Operational Research, Elsevier, vol. 248(3), pages 1021-1030.
    3. James Reade, 2014. "Information and Predictability: Bookmakers, Prediction Markets and Tipsters as Forecasters," Economics & Management Discussion Papers em-dp2014-05, Henley Business School, Reading University.
    4. Štrumbelj, Erik & Vračar, Petar, 2012. "Simulating a basketball match with a homogeneous Markov model and forecasting the outcome," International Journal of Forecasting, Elsevier, vol. 28(2), pages 532-542.
    5. Flepp, Raphael & Nüesch, Stephan & Franck, Egon, 2017. "The liquidity advantage of the quote-driven market: Evidence from the betting industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 306-317.
    6. repec:eee:intfor:v:34:y:2018:i:1:p:17-29 is not listed on IDEAS
    7. Babatunde Buraimo & David Peel & Rob Simmons, 2013. "Systematic Positive Expected Returns in the UK Fixed Odds Betting Market: An Analysis of the Fink Tank Predictions," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(4), pages 1-15, December.
    8. Egon Franck & Erwin Verbeek & Stephan Nüesch, 2013. "Inter-market Arbitrage in Betting," Economica, London School of Economics and Political Science, vol. 80(318), pages 300-325, April.
    9. St'ephane Dupraz & Daniel Muller & Lionel Page, 2013. "Tactical Voting and Voter's Sophistication in British Elections," QuBE Working Papers 011, QUT Business School.

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    Keywords

    Nprediction accuracy; betting; bookmaker; betting exchange; probit regression;

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