Marshall Gramm

Determinants of betting market efficiency

Previous studies of efficient markets in parimutuel betting isolated only one race characteristic, determining efficiency by comparing subjective to objective probabilities of different groupings. By incorporating regression analysis and looking at a wide range of race specific variables, this study is able to isolate various factors which influence efficiency. Using a data set of 5020 races at 18 US racetracks, a standard favourite–longshot bias was found, which diminishes for races with larger pools and more horses in a field, and increases for races with higher quality fields and maiden races. When track-specific characteristics are factored out, similar results occur and it is also found that races on grass reduce the bias.

The Effect of Age on Thoroughbred Racing Performance

Using a dataset of 274 male Thoroughbred racehorses in the United States, we study the effect of age on racing performance. Beyer speed figures, which are uniform measures of racing performance across distance and racing surface, are utilized in this study. A system of equations is estimated to determine quadratic improvement and decline in racing performance. We find that a typical horse’s peak racing age is 4.45 years. The rate of improvement from age 2 to 4 1/2 is greater than the rate of decline after age 4 1/2. A typical horse will improve by 10 (horse) lengths in sprints (less than 1 mile) and 15 lengths in routes (one mile or greater) from age 2 to 4 1/2. Over the next five years the typical decline is 6 lengths for sprints and 9 1/2 lengths for routes.

Efficiency in Pari-Mutuel Betting Markets across Wagering Pools in the Simulcast Era

Simulcast wagering, where bets from across the country are taken at tracks, off-track betting facilities, casinos, by phone or online and incorporated into the same mutuel pool, has contributed to a large increase in betting volume on American horse races since the mid-1990s. This article investigates betting-market efficiency in the simulcast era focusing on whether the interrelated betting markets comprised of win, place (finishing in the top two), and show (finishing in the top three) wagering are efficiently priced. We find that the increased accessibility and betting volume associated with simulcasting has reduced, but not eliminated, the inefficiencies seen in prior studies. Despite the inefficiencies in these markets, arbitrage is not profitable because market closing prices are unknown when bets are placed.

The Case for Regulatory Rent-Seeking: CRA Based Protests of Bank Mergers and Acquisitions

This paper addresses the question of regulatory rent seekingbased on protests of proposed bank mergers and acquisitionssubmitted by community groups to bank regulators. Theories ofCRA-related community group behavior based on benevolence andrent seeking, yield significantly different implicationsconcerning the effect of a banks CRA rating on protestprobability, allowing for a clear test of the underlyingmotive for protest activity. The analysis shows: (1) protestsimpose significant time cost on merger and acquisitionapplications and (2) the benevolent-based theory must berejected in favor of the rent-seeking theory.

The Free Silver Movement in America: A Reinterpretation

Monetary historians have contended that Free Silver advocates were inflationists seeking debt reduction. We offer an alternative interpretation using a theory of money demand with differential returns on nominal units and a nonoptimum nominal money stock. Our explanation is more logically appealing and more consistent with contemporary evidence. The restrictive coinage laws of the period produced chronic shortages, and our empirical analysis provides clear evidence of these shortages. A shortage of coins valued at a half-days wage and less, raised transactions costs, produced hardship and spawned protest.

The effect of late money on betting market efficiency

This article is an analysis of the price movements in a speculative market at closing. Specifically, we look at 1644 US horse races and analyse the change in betting pool totals and their suggested probabilities to confirm that late wagers on average come from more informed bettors. Almost 40% of all wagering dollars enter betting pools in the last minute of wagering. This ‘late’ money is found to increase efficiency and itself is the best prediction of the true win, place and show probability of a horse. A clustered tobit regression shows that late increases in the betting share on a specific horse increase net returns.

Efficiency and arbitrage across parimutuel wagering pools

Previous studies have found some degree of inefficiency in betting markets. However, it is difficult to implement a strategy to take advantage of these biases. This article investigates and attempts to arbitrage interrelated betting markets by undertaking three betting simulations using two datasets comprised of parimutuel pools from US horse races. Two of the betting simulations are positive returns, but in the most realistic real-time simulation the losses are substantial. Profitable betting opportunities disappear due to last minute wagers which change the odds and increase market efficiency.

The efficiency of exotic wagers in racetrack betting

Many empirical studies have found the existence of a bias where the general public overestimates low probability events. This phenomenon has been termed the favourite-longshot bias and has been much studied in betting markets. This article looks at efficiency in multihorse ‘exotic’ wagers using 11 194 races run at 35 U.S. racetracks. We find the standard favourite-longshot in exacta wagers (involves picking the first two finishers in order). Results are unclear for trifecta wagers (picking the first three finishers in order).

Information effects in major league baseball betting markets

Previous studies point to a generally efficient baseball betting market with no profitable betting strategies. However, failure to consider the time of year in which the bets are placed neglects differences in available information throughout the season. This analysis largely confirms the general efficiency of the major league baseball betting market by existing measures; however, incorporating the time of the year in which the bet is made generates persistent profitable betting strategies. The process by which information impacts returns is considered; increasing difficulties in determining the true favourite likely play the largest role, while assessing the exact favourite underdog relationship also has an impact.

The Dosage Breeding Theory for Horse Racing Predictions

Abstract This chapter surveys the dosage breeding theory pioneered by Vuilliers, Varola, and Roman with major emphasis on two top classic three-year-old thoroughbred races, namely, the Kentucky Derby and the Belmont Stakes. Run at 1¼ mi and 1½ mi respectively, they typically are at least ⅛ and ¼ mi longer than any of the horses has ever raced before. This extra distance, combined with the large fields (especially in the Derby), make these two races a difficult test of stamina for horses this young. Bettors are also challenged because there is no direct evidence of whether a horse has the stamina to compete effectively at these distances. The informational content of the publicly available, pedigree-based measure of stamina, the Dosage Index, is used with simple performance measures to identify a semi-strong-form inefficiency. Statistically significant profits, net of transaction costs, could have been achieved during 1946–2006. This can be compared to the middle leg of the Triple Crown, the Preakness, run at 13 16 , where the Dosage Index provided no advantage. JEL Classifications: G10, G14