Home Bias and Prediction Markets: Evidence from the Racetrack
Significant horse races taking place in Britain and France frequently involve participants from both countries. The existence of distinct and segmented wagering markets in each country facilitates the study of potentially different market behaviors. Using over eight hundred observations from these markets, I show the existence of a pronounced home bias, with participants in domestic markets favoring horses trained domestically. The bias is large, statistically significant, and becomes more pronounced as betting odds rise. Restricting the analysis to foreign trained horses that have already performed well in domestic races, I find the bias virtually disappears suggesting a role for learning and informational asymmetries.
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