The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market

Adi Schnytzer (), Martien Lamers and Vasiliki Makropoulou ()
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Adi Schnytzer: Department of Economics, Bar Ilan University
Vasiliki Makropoulou: Utrecht School of Economics, Utrecht University

No 2009-11, Working Papers from Bar-Ilan University, Department of Economics

Abstract: This paper considers the impact of insider trading on forecasting in a betting market when prices are set by bookmakers. We base our analysis on Schnytzer, Lamers and Makropoulou (2008) who showed that inside trading in the 1997-1998 Australian racetrack betting market represents somewhere between 20 and 30 percent of all trading in this market. They show that the presence of insiders leads opening prices to deviate from true winning probabilities. Under these circumstances, forecasting of race outcomes should take into account an estimate of the extent of insider trading per horse. We show that the added value of a measure of insider trading for profitable betting is sufficient to reduce the losses when only prices are taken into account. Since the only variables taken into account in either Schnytzer, Lamers and Makropoulou (2008) or this paper are price data, this is tantamount to a demonstration that the market is weak-form efficient.

Date: 2009-04
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Related works:
Working Paper: The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market (2011)
Journal Article: The impact of insider trading on forecasting in a bookmakers' horse betting market (2010)
Working Paper: The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market (2009)
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