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Efficiency in Pari‐Mutuel Betting Markets across Wagering Pools in the Simulcast Era
Author(s) -
Gramm Marshall,
Owens Douglas H.
Publication year - 2006
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2006.tb00746.x
Subject(s) - closing (real estate) , arbitrage , market efficiency , economics , track (disk drive) , business , advertising , financial economics , computer science , finance , operating system
Simulcast wagering, where bets from across the country are taken at tracks, off‐track betting facilities, casinos, by phone or online and incorporated into the same mutuel pool, has contributed to a large increase in betting volume on American horse races since the mid‐1990s. This article investigates betting‐market efficiency in the simulcast era focusing on whether the interrelated betting markets comprised of win, place (finishing in the top two), and show (finishing in the top three) wagering are efficiently priced. We find that the increased accessibility and betting volume associated with simulcasting has reduced, but not eliminated, the inefficiencies seen in prior studies. Despite the inefficiencies in these markets, arbitrage is not profitable because market closing prices are unknown when bets are placed.