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Are Betting Markets Inefficient? Evidence From Simulations and Real Data

Author

Listed:
  • David Winkelmann
  • Marius Ötting
  • Christian Deutscher
  • Tomasz Makarewicz

Abstract

Previous literature leaves the impression that betting market inefficiencies are widespread. However, most studies rely upon limited data and ignore biases’ persistence. Our simulation-based analyses show (1) the impact of low sample sizes on the chance to detect markets that only appear to be efficient and (2) the frequency of observing inefficient periods within fully efficient markets. Afterwards, we (3) empirically analyze real-world football betting markets for 14 consecutive seasons. While inefficiencies occur in singular seasons, they are not persistent or systematic across leagues. Moreover, our simulation-based analyses suggest that statistically significant effects in single seasons are likely to be observed even under full market efficiency.

Suggested Citation

  • David Winkelmann & Marius Ötting & Christian Deutscher & Tomasz Makarewicz, 2024. "Are Betting Markets Inefficient? Evidence From Simulations and Real Data," Journal of Sports Economics, , vol. 25(1), pages 54-97, January.
    • Handle: RePEc:sae:jospec:v:25:y:2024:i:1:p:54-97
    DOI: 10.1177/15270025231204997
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    betting markets; biases; market efficiency; Monte Carlo simulation;
    All these keywords.

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Z23 - Other Special Topics - - Sports Economics - - - Finance

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