When Disclosure Isn’t Enough: Evidence on Cursedness in Betting Markets

43 Pages Posted: 4 Oct 2022

See all articles by Darren Bernard

Darren Bernard

University of Washington - Department of Accounting

Madi Kapparov

London Business School

Sara Toynbee

University of Texas at Austin

John Wertz

Indiana University - Kelley School of Business - Department of Accounting

Date Written: September 15, 2022

Abstract

The SEC recently proposed new restrictions and expanded disclosures to combat insider trading abuses. We examine the effects of analogous regulatory interventions related to ownership sales in thoroughbred horse betting, a market with numerous parallels to capital markets. Drawing on the “cursedness” literature, we predict and find that bettors underreact to the negative information contained in disclosures of an owner’s decision to offer an asset for sale, implying transparency alone is insufficient to foster efficient markets. Rather, only heavy-handed regulation, which restricts owners’ ability to exploit their private information, eliminates mispricing of the for-sale signal. Our results contribute to the regulatory debate on which interventions are most likely to promote price efficiency and shed new light on the asset- and regulation-specific factors that contribute to cursedness in markets.

Keywords: disclosure, cursedness, betting markets, ownership sales, regulatory interventions

JEL Classification: D03, D82, D83, G02, G14, G18

Suggested Citation

Bernard, Darren and Kapparov, Madi and Toynbee, Sara and Wertz, John, When Disclosure Isn’t Enough: Evidence on Cursedness in Betting Markets (September 15, 2022). Available at SSRN: https://ssrn.com/abstract=4219155 or http://dx.doi.org/10.2139/ssrn.4219155

Darren Bernard (Contact Author)

University of Washington - Department of Accounting ( email )

PACCAR Hall
4273 E Stevens Way NE
Seattle, WA 98195-3200
United States

Madi Kapparov

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Sara Toynbee

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

John Wertz

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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