On the efficiency of racetrack betting market: a new test for the favourite-longshot bias

Jinook Jeong, Jee Young Kim, Yoon Jae Ro

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish
Pages (from-to)5817-5828
Number of pages12
JournalApplied Economics
Volume51
Issue number54
DOIs
Publication statusPublished - 2019 Jan 1

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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