Exploring decision makers' use of price information in a speculative market
Exploring decision makers' use of price information in a speculative market
We explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements. The horse race betting market is an ideal environment to explore these issues. A conditional logit model is constructed to determine winning probabilities based on bookmakers' closing prices and the time-indexed movement of prices to the market close. We incorporate a technique for extracting predictors from price (odds) curves using orthogonal polynomials. The results indicate that closing prices do not fully incorporate market price information, particularly information that is less readily discernable by market participants.
market efficiency, information, modeling price curves, betting, wagering
897-908
Johnson, Johnnie E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Jones, Owen
2df1a217-aec2-4462-b82a-c9d3915535cc
Tang, Leilei
59add3c2-5c1f-460c-8970-5dc0686df272
2006
Johnson, Johnnie E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Jones, Owen
2df1a217-aec2-4462-b82a-c9d3915535cc
Tang, Leilei
59add3c2-5c1f-460c-8970-5dc0686df272
Johnson, Johnnie E.V., Jones, Owen and Tang, Leilei
(2006)
Exploring decision makers' use of price information in a speculative market.
Management Science, 52 (6), .
(doi:10.1287/mnsc.1060.0506).
Abstract
We explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements. The horse race betting market is an ideal environment to explore these issues. A conditional logit model is constructed to determine winning probabilities based on bookmakers' closing prices and the time-indexed movement of prices to the market close. We incorporate a technique for extracting predictors from price (odds) curves using orthogonal polynomials. The results indicate that closing prices do not fully incorporate market price information, particularly information that is less readily discernable by market participants.
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Published date: 2006
Keywords:
market efficiency, information, modeling price curves, betting, wagering
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Local EPrints ID: 35775
URI: http://eprints.soton.ac.uk/id/eprint/35775
ISSN: 0025-1909
PURE UUID: 8edae791-ef80-48e2-bcbd-6c073e70f5b6
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Date deposited: 20 Jun 2006
Last modified: 15 Mar 2024 07:54
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Author:
Johnnie E.V. Johnson
Author:
Owen Jones
Author:
Leilei Tang
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