Information, prices and efficiency in an online betting market

Citation

Elaad G, Reade JJ & Singleton C (2020) Information, prices and efficiency in an online betting market. Finance Research Letters, 35, Art. No.: 101291. https://doi.org/10.1016/j.frl.2019.09.006

Abstract
We contribute to the discussion on betting market efficiency by studying the odds (or prices) set by fifty-one online bookmakers, for the result outcomes in over 16,000 association football matches in England since 2010. Adapting a methodology typically used to evaluate forecast efficiency, we test the Efficient Market Hypothesis in this context. We find odds are generally not biased when compared against actual match outcomes, both in terms of favourite-longshot or outcome types. But individual bookmakers are not efficient. Their own odds do not appear to use fully the information contained in their competitors’ odds.

Keywords
Prediction markets; Efficient market hypothesis; Favourite-longshot bias; Forecast efficiency

Journal
Finance Research Letters: Volume 35