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Informational efficiency and price reaction within in-play prediction markets

Author

Listed:
  • Giovanni Angelini

    () (Department of Economics, University of Bologna)

  • Luca De Angelis

    () (Department of Economics, University of Bologna)

  • Carl Singleton

    () (Department of Economics, University of Reading)

Abstract

We propose a practical framework to detect mispricing, test informational efficiency and evaluate the behavioural biases within high-frequency prediction markets, especially in how prices react to news. We show this using betting exchange data for association football, exploiting the moment when the first goal is scored in a match as major news that breaks cleanly. There is mispricing in these markets and inefficiency, explained by reverse favourite-longshot bias. This is systematically absorbed or amplified after a goal, depending on the match conditions. We find that prices respond correctly when news is expected but overreact when it is a surprise.

Suggested Citation

  • Giovanni Angelini & Luca De Angelis & Carl Singleton, 2019. "Informational efficiency and price reaction within in-play prediction markets," Economics & Management Discussion Papers em-dp2019-20, Henley Business School, Reading University.
  • Handle: RePEc:rdg:emxxdp:em-dp2019-20
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    File URL: http://www.reading.ac.uk/web/FILES/economics/emdp201920.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Market efficiency; Favourite-longshot bias; Mispricing; Sports forecasting; Probability forecasting; Behavioural bias; Betting strategy;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Z2 - Other Special Topics - - Sports Economics

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