Back on the Track with the Efficient Markets Hypothesis

In a 1978 article [10] in this journal, Wayne W. Snyder makes an analogy between security markets and pari-mutuel betting on horse races, suggesting that similarities between the two markets form a basis for the application of the theory of efficient markets to pari-mutuel betting. Snyder's analogy is apt, and his weak form test based on his own findings and similar findings by other researchers [4, 6, 7, 8, 11], is a reasonable test of the weak form efficient markets hypothesis. Furthermore, Snyder's discussion of a strong form test provides a useful basis for the formulation of a test of market efficiency; and with further refinement, it can be transformed into a more powerful test that also provides additional insight as to the influence of handicappers' quoted odds on publicly determined odds. This note further clarifies the applicability of the efficient markets model to pari-mutuel betting markets, and defines and implements a strong form test1 of the efficiency of pari-mutuel betting markets which is a logical extension of Snyder's work…