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Transactions Costs, Extent of Inefficiencies, Entries and Multiple Wagers in a Racetrack Betting Model

In: THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE

Author

Listed:
  • Donald B. Hausch
  • William T. Ziemba

Abstract

In a previous paper (Management Science, December 1981) Hausch, Ziemba and Rubinstein (HZR) developed a system that demonstrated the existence of a weak market inefficiency in racetrack place and show betting pools. The system appeared to make possible substantial positive profits. To make the system operational, given the limited time available for placing bets, an approximate regression scheme was developed for the Exhibition Park Racetrack in Vancouver for initial belting wealth between $2500 and $7500 and a track take of 17.1%. This paper: (I) extends this scheme to virtually any track and initial wealth level; (2) develops a modified system for mUltiple horse entries; (3) allows for multiple bets; (4) analyzes the effects of the track take and breakage on profits; (5) presents recent results using this system; and (6) considers the e1ttent of the inefficiency. i.e., how much can be bet before the market becomes efficient?

Suggested Citation

  • Donald B. Hausch & William T. Ziemba, 2011. "Transactions Costs, Extent of Inefficiencies, Entries and Multiple Wagers in a Racetrack Betting Model," World Scientific Book Chapters, in: Leonard C MacLean & Edward O Thorp & William T Ziemba (ed.), THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 47, pages 681-694, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814293501_0047
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