Recreational versus professional bettors: Performance differences and efficiency implications

Using a novel dataset, which allows comparisons across heterogeneous sub-groups of pari-mutuel bettors, we demonstrate significant behaviour and performance distinctions between recreational and professional investors. Professionals’ ability to earn abnormal returns on short odds horses in high volume markets challenges the existing empirical consensus, which offers very limited evidence of betting market inefficiency. The results offer important lessons for betting operators and regulators and highlight the potential for similar avenues of investigation in other speculative markets.