Informational Efficiency and Price Reaction Within In-Play Prediction Markets

34 Pages Posted: 8 Jan 2020

See all articles by Giovanni Angelini

Giovanni Angelini

University of Bologna - School of Economics, Management, and Statistics

Luca De Angelis

University of Bologna - Department of Economics

Carl Singleton

Department of Economics, University of Reading

Date Written: December 17, 2019

Abstract

We propose a practical framework to detect mispricing, test informational efficiency and evaluate the behavioural biases within high-frequency prediction markets, especially in how prices react to news. We show this using betting exchange data for association football, exploiting the moment when the first goal is scored in a match as major news that breaks cleanly. There is mispricing in these markets and inefficiency, explained by reverse favourite-longshot bias. This is systematically absorbed or amplified after a goal, depending on the match conditions. We find that prices respond correctly when news is expected but overreact when it is a surprise.

Keywords: Market Efficiency, Favourite-Longshot Bias, Mispricing, Sports Forecasting, Probability Forecasting, Behavioural Bias, Betting Strategy

JEL Classification: G14, D01, L83, C58, Z2

Suggested Citation

Angelini, Giovanni and De Angelis, Luca and Singleton, Carl, Informational Efficiency and Price Reaction Within In-Play Prediction Markets (December 17, 2019). Available at SSRN: https://ssrn.com/abstract=3505287 or http://dx.doi.org/10.2139/ssrn.3505287

Giovanni Angelini

University of Bologna - School of Economics, Management, and Statistics ( email )

40126 Bologna
Italy

Luca De Angelis (Contact Author)

University of Bologna - Department of Economics ( email )

Bologna
Italy

Carl Singleton

Department of Economics, University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

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