Are betting markets efficient? Evidence from European Football Championships

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Abstract:

This article investigates the degree of efficiency of the European Football online betting market by using odds quoted by 12 bookmakers on 21 European championships over 11 years. We show that systematically picking out odds inferior to a threshold delivers a rate of return of 4.45% if best odds are selected across bookmakers and 2.78% if mean odds are used. This amounts to backing overwhelmingly favourites whose probability of winning exceeds 90%. Our results only exploit information contained in odds, are robust to the use of real-time data and different sample periods and hold under risk neutrality and expected utility preferences for realistic degrees of risk aversion. Transaction costs reduce profitability but only for small stake bets.

Keywords: D81; G14; asset allocation; betting markets; decision-making under risk; information and market efficiency

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.602010

Affiliations: Laboratoire d'Economie d'Orléans (LEO),Université d'Orléans, Rue de BloisOrléans 45000, France

Publication date: January 1, 2013

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