An exploration of inefficiency in a market for state contingent claims
An exploration of inefficiency in a market for state contingent claims
This paper apportions responsibility for inefficiency in a market for state contingent claims between market makers and traders. We specifically examine the origins of a frequently observed distortion in the market for bets in horseraces - the favorite- longshot bias. Previous studies rationalise the bias in terms of traders' (bettors) or market makers' (bookmakers) behaviour. Employing hitherto unavailable data we conduct a parallel logistic analysis of parimutuel and bookmakers markets, which offers an unequivocal basis for identifying the origin of the bias.
University of Southampton
Johnson, J.E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Bruce, A.C.
6a4ed45f-ba2b-4274-8e94-bd3d3b4f8da9
1999
Johnson, J.E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Bruce, A.C.
6a4ed45f-ba2b-4274-8e94-bd3d3b4f8da9
Johnson, J.E.V. and Bruce, A.C.
(1999)
An exploration of inefficiency in a market for state contingent claims
(Discussion Papers in Accounting and Management Science, 99-144)
Southampton, UK.
University of Southampton
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Monograph
(Discussion Paper)
Abstract
This paper apportions responsibility for inefficiency in a market for state contingent claims between market makers and traders. We specifically examine the origins of a frequently observed distortion in the market for bets in horseraces - the favorite- longshot bias. Previous studies rationalise the bias in terms of traders' (bettors) or market makers' (bookmakers) behaviour. Employing hitherto unavailable data we conduct a parallel logistic analysis of parimutuel and bookmakers markets, which offers an unequivocal basis for identifying the origin of the bias.
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Published date: 1999
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Local EPrints ID: 36091
URI: http://eprints.soton.ac.uk/id/eprint/36091
PURE UUID: 34dc57a3-8de7-4856-903b-38e607262aa8
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Date deposited: 24 Apr 2007
Last modified: 11 Dec 2021 15:31
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Author:
J.E.V. Johnson
Author:
A.C. Bruce
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