Purchase - $38.00

Market Efficiency in Person-to-Person Betting

17 Pages Posted: 12 Oct 2006  

Michael A. Smith

Canterbury Christ Church University College

David Paton

Nottingham University Business School (NUBS)

Leighton Vaughan Williams

Nottingham (Trent) Business School

Abstract

Bookmakers have argued that person-to-person internet 'betting exchanges' represent unfair competition. In this paper we suggest that, in fact, betting exchanges have brought about significant efficiency gains by lowering transaction costs for consumers. We test this hypothesis using matched data on UK horse racing from betting exchanges and from traditional betting media. In comparison with traditional betting media, we find that betting exchanges exhibit evidence of significantly lower market biases. We also find that an information-based model explains the well documented favouritelongshot bias more convincingly than traditional explanations based on risk preferences.

Suggested Citation

Smith, Michael A. and Paton, David and Vaughan Williams, Leighton, Market Efficiency in Person-to-Person Betting. Economica, Vol. 73, No. 292, pp. 673-689, November 2006. Available at SSRN: https://ssrn.com/abstract=936464 or http://dx.doi.org/10.1111/j.1468-0335.2006.00518.x

Michael A. Smith

Canterbury Christ Church University College

Canterbury Kent CT1 1QU UK
United Kingdom

David Paton (Contact Author)

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham NG8 1BB
United Kingdom
+44 0 115 8466601 (Phone)

Leighton Vaughan Williams

Nottingham (Trent) Business School ( email )

Burton Street
NG1 4BU Nottingham
United Kingdom

Paper statistics

Downloads
17
Abstract Views
1,118