On sticky bookmaking as a learning device in horse-racing betting markets

Chi Zhang and Jacco Thijssen

Journal of Economic Dynamics and Control, 2022, vol. 144, issue C

Abstract: We present a stochastic dynamic model of the adjustment of betting odds by bookmakers in a horse-racing betting market. We use optimal stopping theory in a two-horse benchmark model with both informed and noise punters. A costly learning process discloses what information the informed traders possess and a risk-neutral bookmaker selects a stopping time at which the betting odds for each horse in a race are adjusted. Our main finding shows that an increased fraction of informed punters has a non-monotonic effect on the loss per trade to the bookmaker. We also find that as the fraction of noise traders goes up, the learning process is less informative, so that the decision to change the prices for each horse is taken sooner.

Keywords: Horse racing; Betting markets; Dynamic pricing; Optimal stopping time; Sequential hypothesis testing (search for similar items in EconPapers)
JEL-codes: C61 D82 Z23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188922002299
Full text for ScienceDirect subscribers only

Related works:
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:eee:dyncon:v:144:y:2022:i:c:s0165188922002299

DOI: 10.1016/j.jedc.2022.104525

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().