Discovering a profitable trading strategy in an apparently efficient market: exploiting the actions of less informed traders in speculative markets
Discovering a profitable trading strategy in an apparently efficient market: exploiting the actions of less informed traders in speculative markets
This study explores the extent of mispricing in a market for state contingent claims that is commonly believed to be efficient, the UK horserace betting market. We develop conditional logit models for weekend and weekday markets and show that prices are inefficient at weekends when the presence of a larger proportion of less informed bettors results in mispricing. A Kelly investment strategy focused on high probability outcomes in such markets yields considerable positive returns.We identify the need for research exploring the implications for information suppliers and users, regulators and operators in wider financial markets
1131-1159
Sung, M.
2114f823-bc7f-4306-a775-67aee413aa03
Johnson, J.E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Peirson, John
90d77cc7-58d3-4c45-88c9-ceb1aaf0b242
September 2012
Sung, M.
2114f823-bc7f-4306-a775-67aee413aa03
Johnson, J.E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Peirson, John
90d77cc7-58d3-4c45-88c9-ceb1aaf0b242
Sung, M., Johnson, J.E.V. and Peirson, John
(2012)
Discovering a profitable trading strategy in an apparently efficient market: exploiting the actions of less informed traders in speculative markets.
Journal of Business Finance & Accounting, 39 (7-8), .
(doi:10.1111/j.1468-5957.2012.02300.x).
Abstract
This study explores the extent of mispricing in a market for state contingent claims that is commonly believed to be efficient, the UK horserace betting market. We develop conditional logit models for weekend and weekday markets and show that prices are inefficient at weekends when the presence of a larger proportion of less informed bettors results in mispricing. A Kelly investment strategy focused on high probability outcomes in such markets yields considerable positive returns.We identify the need for research exploring the implications for information suppliers and users, regulators and operators in wider financial markets
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Published date: September 2012
Organisations:
Centre of Excellence for International Banking, Finance & Accounting
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Local EPrints ID: 339957
URI: http://eprints.soton.ac.uk/id/eprint/339957
PURE UUID: d83f97c9-8517-42e7-9ef6-31cb76374589
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Date deposited: 06 Jun 2012 10:45
Last modified: 15 Mar 2024 03:20
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Author:
J.E.V. Johnson
Author:
John Peirson
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