Bettor preferences and market efficiency in football totals markets

The betting markets for totals in college football and arena football provide additional evidence of bettor preference for scoring. The results for college football and arena football markets are similar to those found in the professional football and professional basketball totals market. In all of these leagues, the overs are overbet. We suggest that there is a clear preference for bettors to bet the over and the extent of the bias depends upon the volume of uninformed bettors to informed bettors and limits placed on bets in these markets.     

Market efficiency in Scandinavian racetrack betting

This study analyzes Scandinavian racetrack betting markets. We discuss market efficiency and investor behavior in light of the fact that investors earn negative returns on average. Show bets on favorites in Norway yield a small positive return, while all the other betting markets are weak form efficient. We establish the favorite-longshot bias for quinella and exactor bettors, but not for win bettors. Our results can be explained by small pools and high track takes. Investors wagering at the racetrack have a different risk attitude than investors wagering off the track. We explain how our results should influence the design of betting products, especially with respect to the fraction of the pool returned to winners.     

Sportsbook pricing and the behavioral biases of bettors in the NHL

The betting market for the NHL is investigated using actual betting percentages on favorites and underdogs from real sportsbooks. Sportsbooks do not appear to attempt to price to balance the book as betting percentages are not proportional to set odds. As in the NFL and NBA, bettors are shown to have a strong preference for favorites and road favorites in particular. Simple strategies of betting against significant imbalances toward the favorite are shown to generate positive returns. Although not pricing to balance the book, sportsbooks do not appear to price to exploit known bettor biases in all cases. Clear bettor behavioral biases for road favorites are not priced into the odds as the prices set in these cases appear to be a forecast of game outcomes. Pricing as a forecast may ensure long-run viability for the sportsbook as it discourages entry into this market by informed traders and still allows the sportsbook to capture its commission on losing bets over time.     

Market efficiency and NCAA college basketball gambling

The betting market for NCAA college basketball is examined from the 1996–97 season through 2003–04. In the overall sample, market efficiency cannot be rejected. For big favorites, specifically those favorites of 20 or more, a simple strategy of betting the underdog in these games is shown to reject the null hypothesis of a fair bet since the underdog wins more than implied by efficiency. This bias appears to be the same as in other sports. The home-team bias in college basketball is shown to be the opposite of the other sports, however, since big favorites win more often than implied by efficiency. Potential reasons for this bias such as NCAA tournament incentives and uniformity of playing conditions are discussed.     

Well-posedness of measurement error models for self-reported data

This paper considers the widely admitted ill-posed inverse problem for measurement error models: estimating the distribution of a latent variable $X^1$ from an observed sample of $X$, a contaminated measurement of $X^1$. We show that the inverse problem is well-posed for self-reporting data under the assumption that the probability of truthful reporting is nonzero, which is supported by empirical evidences. Comparing with ill-posedness, well-posedness generally can be translated into faster rates of convergence for the nonparametric estimators of the latent distribution. Therefore, our optimistic result on well-posedness is of importance in economic applications, and it suggests that researchers should not ignore the point mass at zero in the measurement error distribution when they model measurement errors with self-reported data. We also analyze the implications of our results on the estimation of classical measurement error models. Then by both a Monte Carlo study and an empirical application, we show that failing to account for the nonzero probability of truthful reporting can lead to significant bias on estimation of the latent distribution.     

What Do Bettors Want? Determinants of Pari‐Mutuel Betting Preference

A bstract .   This paper is an analysis of the demand for thoroughbred racetrack wagers, examining evidence that would support the existence of two types of bettors: the risk-averse informed bettor versus the uninformed bettor. Looking at 12 major racetracks over the fall of 2002, we undertake an empirical examination of the determinants of bettors' preferences for particular wagers on specific races. The goal is to try to determine what individual aspects of a race (conditions, surface, participants, etc.) will encourage increased wagering dollars. With the advent of simulcasting, the competition for the wagering dollar is fierce, as the bettor can choose from more than 100 races daily, each race offering numerous betting options. We find for most wagers that higher quality participants, larger and more competitive fields, and turf races increase betting volume while higher pari-mutuel takeout, poor track conditions, and other races run concurrently reduce volume. However, more competitive fields reduce betting volume in the show and trifecta pools. Optimal field size is determined to be between 10 and 12 betting interests. Overall, we find support for the existence of a significant share of risk-averse informed bettors.     

Efficiency of online football betting markets

This paper evaluates the efficiency of online betting markets for European (association) football leagues. The existing literature shows mixed empirical evidence regarding the degree to which betting markets are efficient. We propose a forecast-based approach for formally testing the efficiency of online betting markets. By considering the odds proposed by 41 bookmakers on 11 European major leagues over the last 11 years, we find evidence of differing degrees of efficiency among markets. We show that, if the best odds are selected across bookmakers, eight markets are efficient while three show inefficiencies that imply profit opportunities for bettors. In particular, our approach allows the estimation of the odds thresholds that could be used to set profitable betting strategies both ex post and ex ante.     

Inefficiency of equilibria in digital mechanisms with continuous valuations

A digital mechanism is defined as an iterative procedure in which bidders select an action, from a finite set, in each iteration. When bidders have continuous valuations and make strategic reports, we show that any ex post implementation of the Vickrey choice rule via such a mechanism needs infinitely many iterations for almost all realizations of the bidders’ valuations. Thus, when valuations are drawn from a continuous probability distribution, the Vickrey choice rule can only be used at the expense of a running time that is infinite with probability one. This infeasibility result even holds in the case of two bidders and the Vickrey choice rule only being required to be established with probability one. Establishing the efficient allocation when the $n$ bidders’ report truthfully contrasts starkly to the previous setting: a bisection procedure has a finite running time almost always, and an expected number of reports are equal to $2n$. Using a Groves payment scheme rather than Vickrey’s second price payment scheme somewhat mitigates the problem. We provide an example mechanism with a Groves payment scheme, in which the running time of the mechanism in equilibrium is finite with probability $\frac{1}{2}$.     

偏差修正的预白化HAC法在平稳过程伪回归中的应用

在传统预白化HAC法存在有限样本偏差的基础上,提出将自回归参数偏差修正法和残差调整法来减少预白化HAC法的偏差,从而降低相互独立的平稳过程之间发生伪回归的概率。通过一系列的蒙特卡罗模拟表明：第一修正的预白化HAC法确实减少了伪回归概率,且自回归参数偏差修正法减少的幅度要比残差调整法要大得多;第二相对于同方差情形而言,存在GARCH类异方差的回归中预白化HAC法具有更低的伪回归概率;第三当数据过程是AR(2)过程时,在持久性相同的情况下预白化HAC法的伪回归概率要低于相应的AR(1)数据过程。但在高于2阶的自回归数据过程的回归中,残差调整的预白化HAC的伪回归概率具有优势。在样本容量较大(T≥500)时自回归参数修正的预白化HAC法的伪回归概率很接近检验水平,但残差调整的预白化HAC法具有微弱的向下检验水平扭曲.     

Correcting for bias in retrospective data

When panel data are not available, retrospective data are used in the estimation of dynamic choice models. However, retrospective data are not reliable. Previous studies of voting choices, for example, have shown that respondents misreport their past choices in order to appear more consistent with their current choice. Such retrospective bias leads to inconsistent estimates, especially when there is state dependence in choices. Specifically, observed persistence in retrospective data may be due to (a) true state dependence, (b) unobserved heterogeneity, and (c) retrospective bias in reporting previous choices. Whereas Heckman in his 1981 study deals with (a) and (b), we introduce a method to estimate true state dependence while accounting for both unobserved heterogeneity and retrospective reporting bias. Our method is based on modeling the reporting behavior and integrating it into the estimation. The identification strategy is based on the correlation between the reported previous choices and current exogenous variables. Using data on Israeli voters, we find that the probability that a respondent whose vote intention in 1991 differed from his or her past voting choices would lie about their past choices is 0.23. Copyright © 2007 John Wiley & Sons, Ltd.     

Default rates in the loan market for SMEs: Evidence from Slovakia

Financial markets in emerging economies are often perceived as more risky than those in developed countries. We investigate whether this is true for loans to SMEs using a unique unbalanced panel of nearly 700 loans made to SMEs in Slovakia between 2000 and 2005. Several probit and panel probit models show that liquidity and profitability factors are important determinants of SME defaults. Moreover, we find that indebtedness significantly increases the probability of default. Liability as proxied by the legal form of SMEs has important incentive effects. Finally, there exist significant differences between sectors. We show that default rates and factors converged to values found in developed financial markets.     

Fixed effects estimation of structural parameters and marginal effects in panel probit models

Fixed effects estimators of nonlinear panel models can be severely biased due to the incidental parameters problem. In this paper, I characterize the leading term of a large-T expansion of the bias of the MLE and estimators of average marginal effects in parametric fixed effects panel binary choice models. For probit index coefficients, the former term is proportional to the true value of the coefficients being estimated. This result allows me to derive a lower bound for the bias of the MLE. I then show that the resulting fixed effects estimates of ratios of coefficients and average marginal effects exhibit no bias in the absence of heterogeneity and negligible bias for a wide variety of distributions of regressors and individual effects in the presence of heterogeneity. I subsequently propose new bias-corrected estimators of index coefficients and marginal effects with improved finite sample properties for linear and nonlinear models with predetermined regressors.     

Real Asset Valuation under Imperfect Competition: Can We Forget About Market Fundamentals?

Real assets are usually valued by computing the stream of profits they can bring to a price‐taking firm in a liquid market. This method ignores market fundamentals by assuming that all the relevant information is included in the spot price. Our article analyses the bias resulting from such an approach when the market is imperfectly competitive. We propose a stylised two‐period model of the natural gas market with no uncertainty, focusing on strategic interactions between two types of oligopolistic players—pure traders and suppliers with downstream customers—who have access to storage. We show that the true value of storage capacity is not the same for traders and for suppliers. Comparing the latter value with the traditional price‐taking valuation reveals a systematic bias that tends to induce underinvestment.     

Weekend racer: cheating and self-governance in road racing

This paper studies how reputation enforces socially cooperative behavior in road racing in the New Orleans metro area. We find that reputation mechanisms have a much stronger effect for frequent road racers than for members of the New Orleans Track Club. We find that club membership cuts cheating in half while a runner who has finished at least one-third of the 2013 running season does not cheat. Thus, self-governance eliminates corruption when there is a reputational mechanism in place. Since data on informal running clubs are unavailable, our analysis underestimates the effect of club membership on socially cooperative behavior in road racing.     

Additional evidence of heuristic-based inefficiency in season wins total betting markets: Major League Baseball

The large majority of sports betting papers have addressed questions of market efficiency based on the outcome of single game, such as spread (sides) or point totals wagers. This research examines the Major League Baseball (MLB) season wins total over/under betting market with respect to questions of market efficiency and profitability. Woodland and Woodland (2013, 2015) investigated the season wins total markets for the National Football League (NFL) and the National Basketball Association (NBA) and found significant inefficiencies. Betting rules tested in this paper parallel those proposed by Woodland and Woodland for the NFL and NBA. They aim to take advantage of the implications of the representativeness heuristic, that is, individuals expect results from a small number of games to generalize to the entire population. The MLB market is found to be inefficient, and provides opportunities for profitable wagering. We establish a tendency for bettors to overreact to a team’s performance in the previous season, particularly for teams with winning records. Results are consistent with the findings for the NFL and NBA season wins totals betting markets. This may be the consequence of monetary betting limits and a structure requiring the completion of a sport’s season before the bet outcome is determined, both of which could discourage some bettors from participating.     

Hospital competition under pay‐for‐performance: Quality,mortality, and readmissions

Health outcomes, such as mortality and readmission rates, are commonly used as indicators of hospital quality and as a basis to design pay‐for‐performance (P4P) incentive schemes. We propose a model of hospital behavior under P4P where patients differ in severity and can choose hospital based on quality. We assume that risk‐adjustment is not fully accounted for and that unobserved dimensions of severity remain. We show that the introduction of P4P which rewards lower mortality and/or readmission rates can weaken or strengthen hospitals' incentive to provide quality. Since patients with higher severity have a different probability of exercising patient choice when quality varies, this introduces a selection bias (patient composition effect) which in turn alters quality incentives. We also show that this composition effect increases with the degree of competition. Critically, readmission rates suffer from one additional source of selection bias through mortality rates since quality affects the distribution of survived patients. This implies that the scope for counterproductive effects of P4P is larger when financial rewards are linked to readmission rates rather than mortality rates.     

The Economic Determinants of the Home Country Bias in Investors' Portfolios: A Survey

In this article, we survey the international portfolio choice literature to investigate why investors choose to bias their portfolios towards domestic equity, even though there are significant gains to diversifying internationally. We focus on three potential explanations. First, we consider if the high proportion of domestic assets in investors' portfolios can be explained by their desire to hedge home inflation. While the models of Krugman (1981), Sercu (1980), Adler and Dumas (1983), and Stulz (1981a, 1983) suggest that this is the case, the model in Uppal (1993) shows that this is true only when relative risk aversion is less than one. Second, we consider the prevailing institutional barriers to foreign investment to see if they are sufficiently large to explain the bias observed in investors' portfolios. Halliday (1989) reports that there are few constraints on investing in foreign stock markets. This is especially true when investing in the markets of developed countries. Even when restrictions exist, they are usually not binding. Third, we consider the models of Black (1974) and Stulz (1981b) to see if transactions costs for investing abroad and taxes on income from foreign assets can explain the home equity bias. Cooper and Kaplanis (1986, 1991) and French and Porterba (1991) estimate that the taxes required to explain the observed bias are much larger than those investors actually face. We conclude that it is unlikely that these three factors are significant enough to explain the degree of the bias in portfolios that is observed empirically.     

Beyond Over-representation: The Problem of Bias in the Inclusion of Minority Group Students in Special Education Programs

The over-representation of ethnic and cultural minorities in Special Education Programs (SEPs) is a problem for education systems whenever objective features in each subject cannot explain this excess. In contrast to what is normally claimed, the problem lies not in over-representation of minorities, but in bias against these groups. In this article, bias is defined as the difference between the probability of being included in a SEP conditioned not only by belonging to an ethnic minority group, but also by the presence or absence of objectively-identifiable problems.The normal procedure for determining over-representation is based on an analysis of the remainder from a logistic model in which the dependent variable is given by an odds ratio. However, over-representation does not necessarily show the presence of bias. In this article, we argue that the presence of bias can be demonstrated using the density of minorities in each district as a predictor of over-representation.In order to determine the presence of bias, this article proposes three methodological changes to the normal procedure for the measurement of over-representation. First, a modification is suggested for the calculation of the traditional odds ratio, taking as the reference group the culturally dominant group, independent of its size in the given district. Second, the criteria for the determination of over-representation are the statistical significance of the difference in the proportion of minority students when compared to the reference group. Finally, the density of minorities is used as a predictor of statistically significant differential placement (SSDP).To illustrate the method, data from The Fall 1994 Elementary and Secondary School Civil Rights Compliance Report (U.S. Department of Education, 1994) is used. Using this data we will describe the pattern of Differential Placement (DP) of ethnic minority students in the disabled programs of Serious Learning Disabilities (SLD) and Serious Emotional Disturbance (SED) using the variable of minority density in the district.Results show ethnic minority membership implies a higher chance of being placed in the SEP mentioned below. However, as minority group density increases, this probability also increases to a maximum point. At this point, the probability of minority students being diverted towards a Disabled Program starts to decrease. This inflexion point in the distribution of placement changes according to ethnic minority group and SEP. The innovative feature of this work is the study of the density of minority groups as the main predictor of over-representation in SEPs.     

Demand and supply estimation biases due to omission of durability

We build a dynamic equilibrium model of a durable goods oligopoly with a competitive secondary market to evaluate the bias in estimating the structural parameters of demand and supply when durability is omitted. We simulate data from our dynamic model and use them to estimate the model’s static counterpart. We find that the static estimate of the elasticity of demand is an overestimate of the true elasticity and that the static estimate of the markup is an underestimate. Our results provide a benchmark on the magnitude and sign of the bias when static models are used for economic inference.     

The Zero Lower Bound and Parameter Bias in an Estimated DSGE Model

This paper examines how and to what extent parameter estimates can be biased in a dynamic stochastic general equilibrium (DSGE) model that omits the zero lower bound (ZLB) constraint on the nominal interest rate. Our Monte Carlo experiments using a standard sticky‐price DSGE model show that no significant bias is detected in parameter estimates and that the estimated impulse response functions are quite similar to the true ones. However, as the frequency of being at the ZLB or the duration of ZLB spells increases, the parameter bias becomes larger and therefore leads to substantial differences between the estimated and true impulse responses. It is also demonstrated that the model missing the ZLB causes biased estimates of structural shocks even with the virtually unbiased parameters. Copyright © 2015 John Wiley & Sons, Ltd.