We show that a combined bet at the bookmaker and at the bet exchange market yields a guaranteed positive return in Moreover, we find that all considered bookmakers frequently offer arbitrage positions, and that they experience, on average, negative margins from these postings. Our findings indicate that bookmakers set prices not only by optimizing over a particular bet, but also by taking the future trading behaviour of their customers into account.
We discuss the implications for the literature on the relationship between betting market structure and informational efficiency. Full text not available from this repository. View at publisher Get full-text in a library. TrendTerms displays relevant terms of the abstract of this publication and related documents on a map.
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You can navigate and zoom the map. Furthermore, placing a bet onall possible outcomes of an event is no longer necessary to hedge against the uncertaintyof the underlying outcome: a bettor can simply buy favourable odds from a bookmakerand sell them directly on the bet exchange platform. Another reason for the numerous inter-market arbitrage opportunities is that pricedierences are more pronounced across markets than within markets.
Empirical studies e. Thispaper conrms these previous ndings. Inter-market arbitrage opportunities mostly arisefrom ineciently low-priced bookmaker bets over-favourable odds that the bettor cansell at a higher price lower odds on the bet exchange platform. A detailed analysisshows that when exploiting inter-market opportunities, bettors gain 1.
Regression analyses support the nding that the bet exchange marketoutperforms the bookmaker market in terms of informational eciency. The literature oers dierent explanations for bookmaker mispricing. Shin ,, , for example, argues that bookmakers skew the odds in order to hedgeagainst the threat of bettors endowed with superior information.
According to his theory,bookmakers decrease the odds on low-probability outcomes where the risk of insiderknowledge is particularly harmful. Moreover, recent papers show that bookmakers canincrease prots by systematically setting wrong odds to take advantage of sentimentalbettor preferences.
Bettors are considered as biased by sentiment if demand spreadsunevenly across the possible outcomes of an event even though odds represent trueprobabilities. One source of sentimental betting behaviour documented in soccer is teampopularity Forrest and Simmons ; Franck et al. Given sentimentalpreferences and thus unequal betting volumes, bookmakers balance their liabilities bydecreasing the odds on the bet with comparatively higher betting volume and byincreasing the odds on the opposing bet Kuypers ; Levitt Alternatively, if.
Whereas these arguments rationalize bookmaker mispricing, they do not fully explainprice dierences between the bookmaker market and the bet exchange. It is not evidentwhy bettor sentiment or the threat of inside knowledge should not equally bias prices atthe exchange market. Bettors who place limit orders at the exchange platform may havesimilar pricing considerations to those of a bookmaker. In this paper we venture the argument that bookmakers do not simply optimize overa particular bet, but take the expected future trading behaviour of their customers intoaccount.
They deliberately decrease prices increase odds relative to the true outcomeprobability from time to time as part of their promotional activities to acquire newcustomers, even though they suer negative average margins from these bets. There are structural dierences between the two market settings that may causedierences in the pricing considerations of the markets traders.
Whereas the marketparticipants remain anonymous to each other at the bet exchange, at the bookmakermarket their identities are revealed. Bettors have to make specic investments to tradewith a given bookmaker, but not if they trade with anonymous suppliers of limit ordersat the bet exchange.
Thus bettors face switching costs between dierent bookmakers. Switching costs include the time and money to open and manage an online account, totransfer money from or to the account, and the time to get accustomed to the web pageand to the procedure of placing bets. Once acquired, bettors may stick with a givenbookmaker and place bets even under unfavourable terms. Additionally, in contrast to alimit order submitter, a bookmaker is able to manage his customer portfolio andcapitalize on their future trading behaviour.
Bookmakers have the technical means togather information on the trading behaviour of each of their clients and to identifyskilled. Home Documents Inter-market Arbitrage in Betting. See Full Reader. Post on Dec views. Category: Documents 2 download.
We show that a combined bet at the bookmaker and at the bet exchange market yields a guaranteed positive return in Moreover, we nd that all considered bookmakers frequently oer arbitrage positions, and that they experience, on average, negative margins from these postings. Our ndings indicate that bookmakers set prices not only by optimizing over a particular bet, but also by taking the future trading behaviour of their customers into account.
We discuss the implications for the literature on the relationship between betting market structure and informational eciency. Arbitrage Investments.
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