Prices of State Contingent Claims with Insider Traders, and the Favourite-Longshot Bias

Hyun Song Shin

Economic Journal, 1992, vol. 102, issue 411, 426-35

Abstract: This paper examines the pricing of state contingent claims in the presence of insider traders. The specific setting is the market for bets in a horse race in which bookmakers compete in prices in anticipation of betting from a group of bettors, some of whom have insider information. The author identifies a condition which is necessary and sufficient for the so called "favorite-bias" in which, the prices on the favorites understate the winning changes of these horses relatively less than the prices on the longshots. The robustness of this result is examined in a more general framework, and the bias is shown to survive in a generalized form. Copyright 1992 by Royal Economic Society.

Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (80)

Downloads: (external link)
http://links.jstor.org/sici?sici=0013-0133%2819920 ... 0.CO%3B2-3&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Chapter: PRICES OF STATE CONTINGENT CLAIMS WITH INSIDER TRADERS, AND THE FAVOURITE-LONGSHOT BIAS (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:102:y:1992:i:411:p:426-35

Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0013-0133

Access Statistics for this article

Economic Journal is currently edited by Martin Cripps, Steve Machin, Woulter den Haan, Andrea Galeotti, Rachel Griffith and Frederic Vermeulen

More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().