A number of empirical studies on the efficiency of racetrack betting market have shown the ‘favourite-longshot bias,’ which means longshots are overbet while favourites are underbet. Asian markets such as Hong Kong and Japan, however, have produced some contradictory empirical evidence to the bias. One critical element in the efficiency test procedure is how to assess the unobservable objective winning probability of a horse in a race. This paper proposes a new test framework with a more general evaluation of the objective probability of winning than the traditional method. Unlike the traditional method, our model allows the heterogeneity of the horses and the races. We apply the new empirical method to test whether the favourite-longshot bias is present in racetrack betting market of Korea. We found that the favourite-longshot bias exists in the racetrack market of Korea and the result distinguishes Korean racetrack market from other Asian markets.
Bibliographical noteFunding Information:
This work was supported by the National Research Foundation of Korea [NRF-2016S1A3A2923769]. We are grateful for the helpful comments from the anonymous referee and the editor. This study was partially funded by the National Research Foundation of Korea (Grant Number NRF-2016S1A3A2923769). The authors declare that they have no conflict of interest.
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All Science Journal Classification (ASJC) codes
- Economics and Econometrics