 Informational efficiency and behaviour within in-play prediction marketsGiovanni Angelini, Luca De Angelis and Carl Singleton International Journal of Forecasting, 2022, vol. 38, issue 1, 282-299 Abstract: Studies of financial market informational efficiency have proven burdensome in practice, because it is difficult to pinpoint when news breaks and is known by some or all the participants. We overcome this by designing a framework to detect mispricing, test informational efficiency and evaluate the behavioural biases within high-frequency prediction markets. We demonstrate this using betting exchange data for association football, exploiting the moment when the first goal is scored in a match as major news that breaks cleanly. There are pre-match and in-play mispricing and inefficiency in these markets, explained by reverse favourite-longshot bias (favourite bias). The mispricing tends to increase when the major news is a surprise, such as a goal scored by a longshot team late in a match, with the market underestimating their chances of going on to win These results suggest that, even in prediction markets with large crowds of participants trading state-contingent claims, significant informational inefficiency and behavioural biases can be reflected in prices. Keywords: Market efficiency; Favourite-longshot bias; Mispricing; Behavioural bias; Betting strategy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:38:y:2022:i:1:p:282-299 DOI: 10.1016/j.ijforecast.2021.05.012 Access Statistics for this article International Journal of Forecasting is currently edited by R. J. Hyndman More articles in International Journal of Forecasting from Elsevier |
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