Efficiency characteristics of a market for state contingent claims
Authors: Bruce, Alistair C.; Johnson, Johnnie E. V.
Source: Applied Economics, Volume 33, Number 13, 20 October 2001 , pp. 1751-1754(4)
Abstract:This paper concludes that a market for state-contingent claims (UK horserace betting) displays evidence of pervasive but heterogeneous forms of inefficiency, in significant contrast to earlier investigations. Using hitherto unavailable data, comparison of notional returns implicit in parallel sets of bookmaker and parimutuel odds identifies inefficiency in terms of zones of distinct but contrasting forms of cross-market returns differential. The inefficiency is rationalized in terms of both buyer and supplier behaviour; its durability is explained in terms of limited arbitrage opportunities.
Document Type: Research Article
Publication date: October 20, 2001