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Product bundling and a rule of thumb versus the Harville formulae: can each way bets with UK bookmakers generate abnormal returns

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  • David Peel
  • David Law
  • Michael Cain

Abstract

Bookmakers practise a type of product bundling. To bet a horse for a place a punter has to bet an equal amount for a win. The returns to the place component of the bet are determined by a rule of thumb. This paper examines whether the product bundling negates a betting strategy that endeavours to exploit any inefficiency in pricing of the place component of each way bets based on the Harville formulae. In order to implement the Harville formulae Shin probabilities are employed, which correct for the favourite longshot bias in starting price odds, as measures of win probabilities. The analysis suggests that small positive expected returns to each way bets appear to exist.

Suggested Citation

  • David Peel & David Law & Michael Cain, 2000. "Product bundling and a rule of thumb versus the Harville formulae: can each way bets with UK bookmakers generate abnormal returns," Applied Economics, Taylor & Francis Journals, vol. 32(13), pages 1737-1744.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:13:p:1737-1744
    DOI: 10.1080/000368400421084
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    References listed on IDEAS

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    1. Donald B. Hausch & William T. Ziemba, 1985. "Transactions Costs, Extent of Inefficiencies, Entries and Multiple Wagers in a Racetrack Betting Model," Management Science, INFORMS, vol. 31(4), pages 381-394, April.
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    3. Jullien, Bruno & Salanie, Bernard, 1994. "Measuring the Incidence of Insider Trading: A Comment on Shin," Economic Journal, Royal Economic Society, vol. 104(427), pages 1418-1419, November.
    4. repec:bla:econom:v:52:y:1985:i:27:p:295-304 is not listed on IDEAS
    5. Hyun Song Shin, 2008. "Prices Of State Contingent Claims With Insider Traders, And The Favourite-Longshot Bias," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 34, pages 343-352, World Scientific Publishing Co. Pte. Ltd..
    6. Shin, Hyun Song, 1991. "Optimal Betting Odds against Insider Traders," Economic Journal, Royal Economic Society, vol. 101(408), pages 1179-1185, September.
    7. Shin, Hyun Song, 1993. "Measuring the Incidence of Insider Trading in a Market for State-Contingent Claims," Economic Journal, Royal Economic Society, vol. 103(420), pages 1141-1153, September.
    8. John Fingleton & Patrick Waldron, 1996. "Optimal Determination of Bookmakers' Betting Odds: Theory and Tests," Economics Technical Papers 969, Trinity College Dublin, Department of Economics.
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    Cited by:

    1. David A. Peel & Davind Law, 2009. "An Explanation of Optimal Each-Way Bets based on Non-Expected Utility Theory," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 3(2), pages 15-35, September.

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