Optimal Pricing in the Online Betting Market

36 Pages Posted: 11 Jan 2013 Last revised: 16 Jan 2016

Date Written: January 01, 2016

Abstract

I find that the optimal price of a bet for a risk-averse bookmaker is a function of elasticity of demand and the number of outcomes of the betting event. In the presence of shocks in the order flow, however, the optimal price can change, and large adjustments can create arbitrage opportunities for informed investors. Using a large sample of online bookmakers and a unique data set of real-time betting odds, I find strong support for these predictions. The results suggest that bookmakers' attitude towards risk is a key driver of prices in the betting market.

Keywords: Betting market; Market efficiency; Risk-aversion; Arbitrage

JEL Classification: G10; G12; G14

Suggested Citation

Montone, Maurizio, Optimal Pricing in the Online Betting Market (January 01, 2016). Available at SSRN: https://ssrn.com/abstract=2199035 or http://dx.doi.org/10.2139/ssrn.2199035

Maurizio Montone (Contact Author)

Utrecht University ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

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