Submission Type

Presentation

Submission Title

Parimutuel versus Fixed-Odds Betting: Evidence from a Hybrid Market

Session Title

Session 2-1-D: Horses, Sports, and Games

Location

Caesars Palace, Las Vegas, Nevada

Start Date

29-5-2019 9:00 AM

End Date

29-5-2019 10:25 AM

Disciplines

Behavioral Economics | Economic Theory | Finance

Abstract

  • Abstract
  • Betting markets on horse races have typically taken one of two forms: 1) a parimutuel pool, where prices are uncertain until the market is closed, or 2) a fixed-odds market, where prices are fixed at the time the bet is placed. I study a hybrid betting market where a pool is run side-by-side with a fixed-odds market, and the two are then combined to determine final pool prices. I find that the fixed-odds market is much quicker to aggregate information, and leads the parimutuel pool in price discovery at all stages of trading. The parimutuel pool is largely neglected, but serves two purposes. It allows bettors to avoid thin early trading, and also provides a mechanism for extracting information in late leftover quotes in the fixed-odds market.
  • Implications
  • The design of betting markets is important for betting operators and economists interested in the functioning of markets. I show that fixed-odds betting attracts more betting volume, and produces more efficient prices, than competing parimutuel pools.

Keywords

betting markets, parimutuel pools, fixed-odds

Author Bio

Alasdair Brown is a Senior Lecturer in Economics at the University of East Anglia. His research interests are in betting markets, behavioral finance, market microstructure and forecasting. His work has been published in leading journals including the Economic Journal, Review of Finance, and the European Journal of Operational Research, and cited in major media outlets such as The Financial Times, The BBC, Bloomberg, Investors Chronicle and the Times.

Funding Sources

None.

Competing Interests

None.

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May 29th, 9:00 AM May 29th, 10:25 AM

Parimutuel versus Fixed-Odds Betting: Evidence from a Hybrid Market

Caesars Palace, Las Vegas, Nevada

  • Abstract
  • Betting markets on horse races have typically taken one of two forms: 1) a parimutuel pool, where prices are uncertain until the market is closed, or 2) a fixed-odds market, where prices are fixed at the time the bet is placed. I study a hybrid betting market where a pool is run side-by-side with a fixed-odds market, and the two are then combined to determine final pool prices. I find that the fixed-odds market is much quicker to aggregate information, and leads the parimutuel pool in price discovery at all stages of trading. The parimutuel pool is largely neglected, but serves two purposes. It allows bettors to avoid thin early trading, and also provides a mechanism for extracting information in late leftover quotes in the fixed-odds market.
  • Implications
  • The design of betting markets is important for betting operators and economists interested in the functioning of markets. I show that fixed-odds betting attracts more betting volume, and produces more efficient prices, than competing parimutuel pools.