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Title: Information efficiency in markets for state contingent claims : a study of British horse race betting
Author: Smith, Michael Anthony
Awarding Body: Nottingham Trent University
Current Institution: Nottingham Trent University
Date of Award: 2007
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The thesis reports a major empirical analysis of information efficiency in UK horse race betting markets. A range of tests for weak- and semi-strong efficiency in bookmaker and betting exchange markets was performed, in relation to a dataset of bookmaker data for 500 races; and a further dataset of matched bookmaker and exchange odds for 700 races. Final bookmaker odds were found to be semi-strong efficient in respect of media forecast information, although evidence of semi-strong and weak-form inefficiencies was found in respect of early morning odds. A transaction cost/information model of the favourite-Iongshot bias was tested in relation to matched exchange and bookmaker data. Employing the Shin's z measure, the empirical validity of this model was confirmed, with bias found to be greater in bookmaker markets than in the exchanges. In both markets bias was found to be inversely related to the amount of information publicly available to bettors about the horses competing in races. Further, it was shown that the transaction cost/information model explained bias in the sample better than risk preference theories, and was also able to account for previous findings of bias in a range of market contexts. Employing a conditional logistic regression model, betting exchange odds adjusted for bias were found to be better predictors of race outcomes than the corresponding bookmaker odds, contrary to previous empirical results. The contradiction was explained in terms of the different composition of market traders in the respective markets studied. Finally, evidence of profitable returns to a quasi-arbitrage trading strategy employed to exploit weak-form inefficiencies, arising from the existence of parallel sets of odds, was reported. A number of potential further research opportunities arise from the thesis, not least in respect of insider trading activity, an issue which was not directly addressed by the current research.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available