Abstract

https://ssrn.com/abstract=2790850
 


 



Do Market Participants Misprice Lottery-Type Assets? Evidence from the European Soccer Betting Market


Maximilian Franke


University of Ulm - Department of Mathematics and Economics

July 23, 2016


Abstract:     
This paper addresses findings from previous asset pricing research that lottery-like stocks are overpriced because investors overweight the probability of large positive returns. I examine lottery-type assets on the European soccer betting market because market efficiency tests on the betting market do not rely on potentially incorrect or incomplete asset pricing models. I use a unique data set, which covers odds from both a betting exchange and the bookmaker market, and find that market participants on the betting exchange misprice odds for extreme favorites and extreme longshots severely. An expected utility model confirms the previous findings and suggests that misperception of probabilities is driving the results. Although bookmakers also bias odds there is evidence that bookmakers are rational and engineer the favorite-longshot bias to protect themselves from insiders or to increase turnover.

Number of Pages in PDF File: 33

Keywords: favorite-longshot bias, betting exchange, bookmaker market, misperception, adverse selection, lottery-type assets

JEL Classification: D80, D81, G10, G14


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Date posted: June 7, 2016 ; Last revised: July 24, 2016

Suggested Citation

Franke, Maximilian, Do Market Participants Misprice Lottery-Type Assets? Evidence from the European Soccer Betting Market (July 23, 2016). Available at SSRN: https://ssrn.com/abstract=2790850 or http://dx.doi.org/10.2139/ssrn.2790850

Contact Information

Maximilian Franke (Contact Author)
University of Ulm - Department of Mathematics and Economics ( email )
Helmholtzstraße 18
Ulm, 89081
Germany
+49 731 50 23951 (Phone)
+49 731 50 23950 (Fax)
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