An Exploration of Inefficiency in Market for State Contingent Claims

B. Alistair, Johnson and J.E.V.

Working Papers from University of Southampton - Department of Accounting and Management Science

Abstract: This paper apportions responsability for inefficency in a market for state contingent claims between market makers and traders. We specifically examine the origins of a frequently observed distortion in the market for bets in horseraces- the favorite- longshot bias. Previous studies rationalise the bias in terms of traders' (bettors) or market makers' (bookmakers) behaviour. Employing hitherto unavailable data we conduct a parallel logistic analysis of parimutuel and bookmakers markets, which offers an uniquivocal basis for identifying the origin of the bias.

Keywords: EFFICIENCY; UNCERTAINTY; INFORMATION (search for similar items in EconPapers)
JEL-codes: D60 D81 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:fth:sotoam:99-144

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