Power,Not Fear: A Collusion-Based Account of Betting Market Inefficiency

We examine racetrack betting market inefficiency. We argue that the overround – an established measure of inefficiency – may be seen as a reflection of bookmakers’ collusive returns maximising behaviour, rather than simply as their response to an adverse selection problem. We test, and find empirical support for, several proposed market effects of bookmaker (market maker) collusion. Besides number of race participants, overround varies significantly according to (1) whether or not the race is the last at the race meeting, (2) racetrack location, (3) day of the week (weekday vs. weekend), (4) type of race (handicap vs. non-handicap), and (5) type of race event (Flat/National Hunt). The study provides fresh insight into the origins of betting market inefficiency, where the link between market structure and context and bookmaker behaviour is a key feature. Regarding the broader implications, the study alerts us to the potential for financial market inefficiencies such as the bid-ask spread to be explained, in part, as a consequence of market makers’ opportunistic behaviour wherever and whenever it is possible for intermediaries to exploit their understanding of investor behaviour.     

Market reaction to public information: The atypical case of the Boston Celtics

The publicly traded Boston Celtics Limited Partnership shares provide a unique means of studying the impact of information on equity prices. The results of the Celtics’ basketball games significantly affect partnership share returns, trading volume, and volatility. Controlling for the expectedvalue of the signal using betting-market point spreads has little effect on these relations. Investors respond asymmetrically to wins and losses, and playoff games have a larger impact on returns than regular-season games. Opening prices do not fully reflect game results, consistent with previous findings that significant volatility is caused by traders acting on private information.     

Betting against beta with intraday and overnight signals

The abnormal returns of the Betting Against Beta (BAB) strategy have attracted much interest among researchers and practitioners. Based on a market anomaly related to the Capital Asset Pricing Model, this strategy uses daily beta as a signal for portfolio construction. However, recent literature shows how some financial quantities, including beta, change between trading and non-trading periods. For this reason, we decided to compare the performance of the original BAB strategy with two BAB variants, where the signal for portfolio construction is given by intraday and overnight beta, respectively. Despite all strategies exhibiting positive cumulative returns, using the intraday beta signal leads to significantly higher performances. Further analyses show that the abnormal intraday BAB returns are mainly due to nano and micro-cap stocks which tend to outperform large-cap stocks, as well known from the literature.     

Betting on a buzz: Mispricing and inefficiency in online sportsbooks

Bookmakers sell claims to bettors that depend on the outcomes of professional sports events. Like other financial assets, the wisdom of crowds could help sellers to price these claims more efficiently. We use the Wikipedia profile page views of professional tennis players involved in over 10,000 singles matches to construct a buzz factor. This measures the difference between players in their pre-match page views relative to the usual number of views they received over the previous year. The buzz factor significantly predicts mispricing by bookmakers. Using this fact to forecast match outcomes, we demonstrate that a strategy of betting on players who received more pre-match buzz than their opponents can generate substantial profits. These results imply that sportsbooks could price outcomes more efficiently by listening to the buzz.