Question: What is the relationship between volume betting and profitability?

The connection between betting volume and profitability is complicated and depends on the situation. In sports betting, just because more people are placing bets doesn’t mean the predictions become more accurate or that the market becomes more efficient (Paul et al., 2014; Humphreys, 2010).

In horse racing, however, larger betting pools tend to make the market more efficient. When more money is involved, bettors are less likely to make irrational decisions, which reduces mistakes in odds setting (Walls & Busche, 1996; Busche & Walls, 2000).

In financial markets, higher trading volume is often linked to higher future returns for stocks that are easy to buy and sell (Brown et al., 2009). However, just because statistical models accurately predict market volatility doesn’t always mean traders will make money from those predictions (Fuertes et al., 2010).

Another important point is that betting returns don’t necessarily measure how accurate a bettor’s predictions are, even though they do indicate profitability (Wunderlich & Memmert, 2020). Finally, many people bet not just to make money, but because they enjoy the sport. Betting behavior often reflects fan behavior, meaning that entertainment and emotional investment can influence betting choices as much as strategy and analysis (Paul & Weinbach, 2010).

just because more people are placing bets doesn’t mean the predictions become more accurate or that the market becomes more efficient

Summary of: Paul et al, 2014; Humphreys, 2010

Anecdote

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Articles Cited

  • “R. Paul, A. Weinbach, K. Small (2014): The Relationship between Sportsbook Volume, Forecast Accuracy, and Market Efficiency: The NFL and NCAA Football, https://doi.org/10.5750/JPM.V8I2.888
    • The paper examines the relationship between betting volume, forecast accuracy, and market efficiency in the NFL and NCAA football betting markets.”
  • “W. Walls, K. Busche (1996): Betting volume and market efficiency in Hong Kong race track betting, https://doi.org/10.1080/135048596355592
    • The paper examines the efficiency of the Hong Kong race track betting market using the Harville formula and cointegration analysis, and finds that betting volume is a significant determinant of market efficiency across races but not within races.”
  • “B. Humphreys (2010): Prices, Point Spreads and Profits: Evidence from the National Football League, –
    • The paper finds that bookmakers can generate higher profits by allowing imbalanced betting volumes on games, rather than trying to attract equal betting on both sides.”
  • “K. Busche, W. Walls (2000): Decision Costs and Betting Market Efficiency, https://doi.org/10.1177/104346300012004006
    • The paper examines the relationship between decision costs and market efficiency in racetrack betting markets, finding that metrics of non-optimizing behavior are inversely related to the volume of betting.”
  • “Ana‐Maria Fuertes, E. Kalotychou, N. Todorovic (2010): Daily volume, intraday and overnight returns for volatility prediction: profitability or accuracy?, https://doi.org/10.2139/ssrn.1438041
    • This paper analyzes the relative ability of daily trading volume, intraday returns, and overnight returns to predict equity volatility, and investigates whether statistical accuracy of volatility forecasts translates into economic gains for technical traders.”
  • “Fabian Wunderlich, D. Memmert (2020): Are betting returns a useful measure of accuracy in (sports) forecasting?, https://doi.org/10.1016/j.ijforecast.2019.08.009
    • The paper demonstrates that positive betting returns can be generated without superior model accuracy, and that betting returns should not be treated as a valid measure of model accuracy, but rather as a measure of profitability.”
  • “Jeffrey H. Brown, Douglas K. Crocker, Stephen R. Foerster (2009): Trading Volume and Stock Investments, https://doi.org/10.2469/faj.v65.n2.4
    • The summary is that this paper finds a positive relationship between trading volume/turnover and subsequent stock returns for larger, more liquid stocks, contrary to previous literature suggesting a negative relationship for less liquid stocks.”
  • “R. Paul, A. Weinbach (2010): The Determinants of Betting Volume for Sports in North America: Evidence of Sports Betting as Consumption in the NBA and NHL, –
    • The study examines the factors that influence betting volume on individual NBA and NHL games, finding that betting behavior is similar to fan behavior, with factors like team quality and TV coverage positively impacting betting volume, suggesting that sports betting is more about consumption than pure investment.”

Insufficient Detail?

At times it is difficult to answer the question as there are not enough relevant published journal articles to relate. It could be that the topic is niche, there’s a significant edge (and researchers prefer not to publish), there is no edge or simply no one has thought to investigate.

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