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Insider Trading, Herding Behaviour and Market Plungers in the British Horse–race Betting Market
Author(s) -
Law David,
Peel David A.
Publication year - 2002
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/1468-0335.00285
Subject(s) - herding , odds , insider trading , insider , economics , herd , race (biology) , financial economics , monetary economics , business , finance , biology , political science , medicine , geography , logistic regression , law , veterinary medicine , forestry , botany
Crafts [N. F. R. Crafts (1985) Economica , 52 , 295—304] suggested that a pronounced shortening of bookmaker odds in horse–race betting markets could indicate the presence of insider traders. This paper uses the Shin [H. S. Shin (1993) Economic Journal , 103 , 1141—53] measure of the incidence of insider trading at the beginning of the betting period (opening prices) and at the end of it (starting prices) to distinguish the shortening of odds caused by insider trading from that caused by herding behaviour. It turns out that significant positive betting returns are achieved when shortening odds are accompanied by a rise in the Shin measure; when they are accompanied by a fall, returns are negative, suggesting herd behaviour.