On the Efficiency of Racetrack Betting Market: A New Test for the Favorite-Longshot Bias

Jinook Jeong, Jee Young Kim () and Yoon Jae Ro
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Yoon Jae Ro: University of California at Riverside

No 2017rwp-106, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: A number of empirical researches on the efficiency of racetrack betting market have shown the ¡®favorite-longshot bias,¡¯ which means longshots are overbet while favorites are underbet. Asian markets such as Hong Kong and Japan, however, have produced some contradictory empirical evidence to the bias. One critical element in the efficiency test procedure is how to assess the unobservable objective winning probability of a horse in a race. This paper proposes a new test framework with a more general evaluation of the objective probability of winning than the traditional method. Unlike the traditional method, our model allows the heterogeneity of the horses and the races. We apply the new empirical method to test whether the favorite-longshot bias is present in racetrack betting market of Korea. We found that the favorite-longshot bias exists in the racetrack market of Korea and the result distinguishes Korean racetrack market from other Asian markets.

Keywords: Market efficiency test; Favorite-longshot bias; Racetrack betting; Probit regression (search for similar items in EconPapers)
JEL-codes: D81 G14 L83 (search for similar items in EconPapers)
Pages: 25pages
Date: 2017-08
New Economics Papers: this item is included in nep-sea
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Journal Article: On the efficiency of racetrack betting market: a new test for the favourite-longshot bias (2019)
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