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Insider Trading, Herding Behaviour and Market Plungers in the British Horse-Race Betting Market

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  • Law, David
  • Peel, David A

Abstract

Crafts (1985) suggested that a pronounced shortening of bookmaker odds in horse-race betting markets could indicate the presence of insider traders. This paper uses the Shin (1993) measure of the incidence of insider trading at the beginning of the betting period (opening prices) and at the end of it (starting prices) to distinguish the shortening of odds caused by insider trading from that caused by herding behaviour. It turns out that significant positive betting returns are achieved when shortening odds are accompanied by a rise in the Shin measure; when they are accompanied by a fall, returns are negative, suggesting herd behaviour. Copyright 2002 by The London School of Economics and Political Science

Suggested Citation

  • Law, David & Peel, David A, 2002. "Insider Trading, Herding Behaviour and Market Plungers in the British Horse-Race Betting Market," Economica, London School of Economics and Political Science, vol. 69(274), pages 327-338, May.
    • Handle: RePEc:bla:econom:v:69:y:2002:i:274:p:327-38
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    Cited by:

    1. John Peirson & Michael A. Smith, 2010. "Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behavior," Southern Economic Journal, John Wiley & Sons, vol. 76(4), pages 976-992, April.
    2. Smith, Michael A. & Paton, David & Williams, Leighton Vaughan, 2009. "Do bookmakers possess superior skills to bettors in predicting outcomes?," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 539-549, August.
    3. M. Sung & J. E. V. Johnson, 2010. "Revealing Weak-Form Inefficiency in a Market for State Contingent Claims: The Importance of Market Ecology, Modelling Procedures and Investment Strategies," Economica, London School of Economics and Political Science, vol. 77(305), pages 128-147, January.
    4. Sung, Ming-Chien & McDonald, David C.J. & Johnson, Johnnie E.V. & Tai, Chung-Ching & Cheah, Eng-Tuck, 2019. "Improving prediction market forecasts by detecting and correcting possible over-reaction to price movements," European Journal of Operational Research, Elsevier, vol. 272(1), pages 389-405.
    5. Ma, Tiejun & Tang, Leilei & McGroarty, Frank & Sung, Ming-Chien & Johnson, Johnnie E. V, 2016. "Time is money: Costing the impact of duration misperception in market prices," European Journal of Operational Research, Elsevier, vol. 255(2), pages 397-410.
    6. Lessmann, Stefan & Sung, Ming-Chien & Johnson, Johnnie E.V., 2009. "Identifying winners of competitive events: A SVM-based classification model for horserace prediction," European Journal of Operational Research, Elsevier, vol. 196(2), pages 569-577, July.
    7. Michael A. Smith & David Paton & Leighton Vaughan-Williams, 2004. "Costs, biases and betting markets: new evidence," Working Papers 2004/5, Nottingham Trent University, Nottingham Business School, Economics Division.
    8. John Peirson & Michael A. Smith, 2010. "Symposium Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behavior," Southern Economic Journal, John Wiley & Sons, vol. 76(4), pages 976-992, April.
    9. Alistair C. Bruce & Johnnie E. V. Johnson & John D. Peirson & Jiejun Yu, 2009. "An Examination of the Determinants of Biased Behaviour in a Market for State Contingent Claims," Economica, London School of Economics and Political Science, vol. 76(302), pages 282-303, April.
    10. Alistair Bruce & David Marginson, 2014. "Power, Not Fear: A Collusion-Based Account of Betting Market Inefficiency," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 21(1), pages 77-97, February.
    11. Sung, Ming-Chien & Johnson, Johnnie E.V. & McDonald, David C.J., 2016. "Informed trading, market efficiency and volatility," Economics Letters, Elsevier, vol. 149(C), pages 56-59.
    12. Smith, Michael A. & Vaughan Williams, Leighton, 2010. "Forecasting horse race outcomes: New evidence on odds bias in UK betting markets," International Journal of Forecasting, Elsevier, vol. 26(3), pages 543-550, July.
    13. John Peirson & Michael A. Smith, 2010. "Symposium Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behavior," Southern Economic Journal, Southern Economic Association, vol. 76(4), pages 976-992, April.
    14. Stefan Winter & Martin Kukuk, 2008. "Do horses like vodka and sponging? - On market manipulation and the favourite-longshot bias," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 75-87.

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