EFFICIENCY OF THE MARKET FOR RACETRACK BETTING

Donald B. Hausch, William T. Ziemba and Mark Rubinstein
Additional contact information
Donald B. Hausch: Northwestern University, USA
William T. Ziemba: University of British Columbia, Canada
Mark Rubinstein: University of California, Berkeley, USA

Chapter 38 in Efficiency of Racetrack Betting Markets, 2008, pp 373-390 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractMany racetrack bettors have systems. Since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature. Fundamental strategies utilize past data available from racing forms, special sources, etc. to “handicap” races. The investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take. Technical systems require less information and only utilize current betting data. They attempt to find inefficiencies in the “market” and bet on such “overlays” when they have positive expected value. Previous studies and our data confirm that for win bets these inefficiencies, which exist for underbet favorites and overbet longshots, are not sufficiently great to result in positive profits. This paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense. Estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations. Since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program. Side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple. The system was tested on data from Santa Anita and Exhibition Park using exact and approximate solutions (that make the system operational at the track given the limited time available for placing bets) and found to produce substantial positive profits. A model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies.

Keywords: Racetrack Efficiency; Racetrack Betting Market; Racetrack Betting; Win Market; Finance (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789812819192_0038 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789812819192_0038 (text/html)
Ebook Access is available upon purchase.

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:wsi:wschap:9789812819192_0038

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().