Isabel Abinzano

Game, Set and Match: The Favorite-Long Shot Bias in Tennis Betting Exchanges

ABSTRACT We test for the existence of Favourite-Longshot Bias (FLB) in tennis betting exchanges. Despite these being order-driven markets, with no direct participation from bookmakers, we have found very similar results to those obtained by Lahvička (2014) for bookmakers’ betting markets: the bias is stronger in matches between lower-ranked players, in later round matches and in high profile tournaments. This suggests that bookmakers’ adjustments to respond to informed betting are not the main driver of FLB. The varying magnitude of the bias across different types of event in the main market also weakens arguments linking FLB to gamblers’ risk preferences, and suggests the need to consider the microstructure features of the market together with the cognitive biases highlighted in the behavioural finance literature.

Es el efecto momentum exclusivo de empresas insolventes

RESUMEN El artículo analiza el papel del riesgo de insolvencia en la explicación del efecto momentum. De acuerdo con la evidencia reciente, se ha encontrado que el efecto momentum es mayor entre las empresas con alto nivel de insolvencia. Sin embargo, las carteras neutrales al riesgo de insolvencia muestran rentabilidades similares a las carteras de momentum ordinarias, por lo que no podemos concluir que los beneficios de las estrategias de momentum obedezcan a una compensación por el riesgo de insolvencia. Por último, aunque el riesgo de insolvencia es una característica importante de las carteras de momentum, no es la única característica relevante puesto que hemos detectado efecto momentum significativo en empresas de pequeño tamaño independientemente de su nivel de insolvencia.

Pricing levered warrants with dilution using observable variables

Abstract We propose a valuation framework for pricing European call warrants on the issuer’s own stock that allows for debt in the issuer firm. In contrast to other works that also price warrants with dilution issued by levered firms, ours uses only observable variables. Thus, we extend the models of Crouhy and Galai [J. Bank. Finance, 1994, 18, 861–880] and Ukhov [J. Financ. Res., 2004, 27(3), 329–339]. We provide numerical examples to study some implementation issues and to compare the model with existing ones.

Behavioral Biases Never Walk Alone An Empirical Analysis of the Effect of Overconfidence on Probabilities

This paper has received financial support from the Spanish Ministry of Economy and Competitiveness (ECO2012-35946-C02-01)This article presents evidence of the impact of overconfidence bias in asset prices drawn from a study based on data from tennis betting exchanges. A series of betting strategies in tournaments with a clear-cut favorite are shown to yield significant economic returns. The impact of overconfidence bias on betting odds increases with trading volume, media coverage, and levels of disagreement between overconfident and cumulative prospect theory bettors. Just as in traditional financial markets, arbitrage limits are shown to be a necessary condition for the impact of behavioral biases on prices.

Does Default Probability Matter in Latin American Emerging Markets

We analyze the impact of default probability in four leading Latin American stock markets: Argentina, Brazil, Chile, and Mexico. We find no positive default-risk premium except in the case of Brazil, and in fact we find a negative risk premium for Argentina and Mexico. The latter effect tends to fade when the analysis accounts for size and book-to-market variables. Although we find no size effect in any of the markets considered, the book-to-market effect is very strong in all of them, and our results reveal a consistent relationship, analogous to that found in more developed markets, between default probability and the size and book-to-market variables.

Behavioral Biases Never Walk Alone

This paper has received financial support from the Spanish Ministry of Economy and Competitiveness (ECO2012-35946-C02-01)This article presents evidence of the impact of overconfidence bias in asset prices drawn from a study based on data from tennis betting exchanges. A series of betting strategies in tournaments with a clear-cut favorite are shown to yield significant economic returns. The impact of overconfidence bias on betting odds increases with trading volume, media coverage, and levels of disagreement between overconfident and cumulative prospect theory bettors. Just as in traditional financial markets, arbitrage limits are shown to be a necessary condition for the impact of behavioral biases on prices.