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Market In efficiency in Person‐to‐Person Betting: Examining ‘Known Loser’ Insider Trading on the Exchanges
Author(s) -
Marginson David
Publication year - 2010
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 - 10.4284/sej.2010.76.4.932
Subject(s) - insider , insider trading , market efficiency , efficient market hypothesis , algorithmic trading , financial economics , test (biology) , economics , business , high frequency trading , monetary economics , advertising , microeconomics , finance , stock market , law , political science , paleontology , biology , horse
Applying the Shin z measure of market efficiency to the relatively new person‐to‐person internet betting exchanges, Smith, Paton, and Vaughan Williams found “significantly lower market biases” compared to bookmaker‐dominated markets. A reduced favorite‐longshot bias is interpreted as evidence that insider trading on the exchanges “is not widespread” and “not as commonplace … as is sometimes portrayed in the media.” Given that the Shin measure assumes “betting with bookies,” whereas the exchanges represent “betting without bookies,” the present study employs the notion of ‘significant mover’ to empirically test for the presence of ‘known loser’ insider trading on the exchanges where traditional notions of bookmaking do not apply. Findings indicate that, far from being less problematized by insider trading compared to racetrack betting, activity aimed at profiting from “known losers” may be potentially commonplace on the exchanges. This includes profiting from horses that are unplaced. This study offers new insight into the efficiency of betting markets.