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Does information efficiency require a perception of information inefficiency?

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  • Leighton Vaughan Williams
  • David Paton

Abstract

This paper examines the existence of significant differences in the expected returns to bets placed about identical outcomes in different sectors of a betting market. In an informationally efficient market, such differences should be arbitraged away. Evidence is presented here which suggests that this process actually occurs only in those situations where bettors are provided with a clear signal of some form of information efficiency in the market. The signal takes the form of a marked movement in bookmakers' odds. Where these signals are not present, unexploited opportunities for arbitrage persist. We suggest that actual information efficiency (in the sense of an absence of unexploited opportunities for arbitrage) requires a clear perception by market players of the existence of some form of information inefficiency in the market under consideration.

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  • Leighton Vaughan Williams & David Paton, 1997. "Does information efficiency require a perception of information inefficiency?," Applied Economics Letters, Taylor & Francis Journals, vol. 4(10), pages 615-617.
    • Handle: RePEc:taf:apeclt:v:4:y:1997:i:10:p:615-617
    DOI: 10.1080/758533285
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    References listed on IDEAS

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    1. Williams, Leighton Vaughan & Paton, David, 1997. "Why Is There a Favourite-Longshot Bias in British Racetrack Betting Markets?," Economic Journal, Royal Economic Society, vol. 107(440), pages 150-158, January.
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    5. Schnytzer, Adi & Shilony, Yuval, 1995. "Inside Information in a Betting Market," Economic Journal, Royal Economic Society, vol. 105(431), pages 963-971, July.
    6. Gabriel, Paul E & Marsden, James R, 1990. "An Examination of Market Efficiency in British Racetrack Betting," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 874-885, August.
    7. Gabriel, Paul E & Marsden, James R, 1991. "An Examination of Efficiency in British Racetrack Betting: Errata and Corrections," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 657-659, June.
    8. R. Bird & M. McCrae, 2008. "The Efficiency Of Racetrack Betting Markets: Australian Evidence," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 57, pages 575-582, World Scientific Publishing Co. Pte. Ltd..
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    2. D. A. Peel & D. Law & M. Cain, 1999. "Market movers and tote and bookmakers returns: further empirical evidence on a market anomaly," Applied Economics Letters, Taylor & Francis Journals, vol. 6(12), pages 801-804.

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