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Prediction Accuracy of Different Market Structures - Bookmakers Versus a Betting Exchange

International Journal of Forecasting, Vol. 26, No. 3, pp. 448-459, 2010

ISU Working Paper No. 96

26 Pages Posted: 24 Nov 2010  

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Erwin Verbeek

University of Zurich - Department of Business Administration (IBW)

Stephan Nüesch

University of Muenster

Date Written: November 10, 2009

Abstract

There is a well-established literature on separately testing the prediction power of different betting market settings. This paper provides an inter-market comparison of the forecasting accuracy between bookmakers and a major betting exchange. Employing a dataset covering all football matches played in the major leagues of the “Big Five” (England, France, Germany, Italy, Spain) during three seasons (5478 games in total), we find evidence that the betting exchange provides more accurate predictions of the same underlying event than bookmakers. A simple betting strategy of selecting bets for which bookmakers offer lower probabilities (higher odds) than the bet exchange generates above average and, in some cases, even positive returns.

Keywords: prediction accuracy, betting, bookmaker, bet exchange, probit regression

JEL Classification: D12, D21, D81, G14

Suggested Citation

Franck, Egon P. and Verbeek, Erwin and Nüesch, Stephan, Prediction Accuracy of Different Market Structures - Bookmakers Versus a Betting Exchange (November 10, 2009). International Journal of Forecasting, Vol. 26, No. 3, pp. 448-459, 2010. Available at SSRN: https://ssrn.com/abstract=1503350 or http://dx.doi.org/10.2139/ssrn.1503350

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

Erwin Verbeek

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

Stephan Nüesch (Contact Author)

University of Muenster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/uf

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