Bettors Love Skewness, Not Risk, at the Horse Track

Journal of Political Economy Vol 106, No 1, February 1998

Posted: 11 Feb 1998

See all articles by Joseph H. Golec

Joseph H. Golec

University of Connecticut - Department of Finance

Maurry Tamarkin

Clark University

Abstract

Studies of horse race betting have empirically established a longshot anomaly; that is, low-probability, high-variance bets (longshots) provide low mean returns and high-probability, low-variance bets provide relatively high mean returns. Because bettors willingly accept low-return, high-variance bets, researchers conclude that bettors are risk lovers. In this study, we show that the data are at least as consistent with risk aversion as they are with risk loving when one explicitly considers the skewness of bet returns. Because the variance and skewness of bet returns are highly correlated, bettors may appear to prefer variance when it is skewness that they crave.

JEL Classification: D81, G12

Suggested Citation

Golec, Joseph and Tamarkin, Maurry J., Bettors Love Skewness, Not Risk, at the Horse Track. Journal of Political Economy Vol 106, No 1, February 1998, Available at SSRN: https://ssrn.com/abstract=58548

Joseph Golec (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Maurry J. Tamarkin

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States
508-793-7657 (Phone)

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