Research on racetrack betting efficiency has produced mixed findings, with some studies suggesting that betting markets are largely efficient, especially with closing prices that reflect most of the available information (Asch et al., 1986; Bird & McCrae, 1987). The efficient market hypothesis is often supported by the observation that these prices account for a wide array of factors influencing race outcomes, from jockey performance to horse condition. However, other research highlights the presence of inefficiencies, particularly in the form of the favorite-longshot bias, where favorites are underbet and longshots are overbet. This bias is evident in the way bettors often overvalue longshots, despite these bets generally offering worse expected returns (Brown et al., 1994; Gramm & Rhodes College, 2005). While this bias tends to diminish as betting volume increases, the presence of such inefficiencies suggests that the market is not entirely efficient, particularly in certain betting categories.
Further inefficiencies have been linked to the use of morning line odds, which, although informative, may not always fully incorporate all market information, especially in cases where late betting shifts are not captured (Johnson et al., 2006). Other studies point to the influence of information costs and track takeout as additional factors contributing to inefficiency, particularly for bettors who face barriers to accessing real-time, comprehensive data (Terrell & Farmer, 1996). Various methods have been employed to test betting market efficiency, including grouping horses by odds or favorite position and analyzing the returns based on these groupings (Quandt, 1986; Gramm & Rhodes College, 2005). These studies suggest that while inefficiencies may persist, particularly in place and show betting markets, the overall market efficiency for win bets is relatively high. Thus, while some small inefficiencies remain, especially in niche betting markets, the racetrack betting market generally reflects an efficient allocation of information for win bets, with closing prices serving as reliable indicators of race outcomes.
Research on racetrack betting efficiency has produced mixed findings, with some studies suggesting that betting markets are largely efficient, especially with closing prices that reflect most of the available information
Summary of: Bird & McCrae 1987
Anecdote
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Articles Cited
- “P. Asch, B. Malkiel, R. Quandt (1986): Market Efficiency in Racetrack Betting: Further Evidence and a Correction, https://doi.org/10.1086/296321
- The authors previously reported on simulated betting strategies based on logit analysis of racetrack betting data, and found that while they were unable to devise profitable strategies for win betting, they were able to employ profitable strategies for place and show betting.”
- “Robert L. Losey, John C. Talbott (1980): Back on the Track with the Efficient Markets Hypothesis, https://doi.org/10.1111/J.1540-6261.1980.TB03520.X
- The paper further clarifies the applicability of the efficient markets model to pari-mutuel betting markets and defines and implements a strong form test of the efficiency of pari-mutuel betting markets, which is a logical extension of Snyder’s previous work.”
- “Johnnie E. V. Johnson, O. Jones, Leilei Tang (2006): Exploring Decision Makers’ Use of Price Information in a Speculative Market, https://doi.org/10.1287/mnsc.1060.0506
- The paper explores the extent to which participants in a speculative market, specifically a horse race betting market, effectively account for information contained in prices and price movements when making decisions.”
- “L. Brown, R. D’Amato, Randy A Gertner (1994): Racetrack Betting: Do Bettors Understand the Odds?, https://doi.org/10.1080/09332480.1994.10542422
- The authors analyzed racetrack betting to determine whether bettors understand the odds and have an accurate perception of the probability of each horse winning a race.”
- “Marshall K. Gramm, Rhodes College (2005): BETTING MARKET EFFICIENCY AT PREMIERE RACETRACKS, –
- This paper empirically analyzes the favorite-longshot bias in betting markets at the two largest U.S. racetracks, Saratoga and Del Mar, finding that while inefficiencies exist, they are reduced as betting volume increases.”
- “D. Terrell, A. Farmer (1996): Optimal Betting and Efficiency in Parimutuel Betting Markets with Information Costs, https://doi.org/10.2307/2235361
- The paper presents a model of parimutuel betting markets that explains several empirical observations, such as market odds failing to accurately predict outcomes and longshots earning lower expected values, as consequences of the track’s takeout and the presence of informed bettors who purchase true probabilities of events.”
- “R. Bird, M. McCrae (1987): Tests of the efficiency of racetrack betting using bookmaker odds, https://doi.org/10.1287/MNSC.33.12.1552
- The paper evaluates the informational efficiency of the horse racing betting market using bookmaker odds, finding that the market is generally efficient but that those with access to private information can still earn positive returns.”
- “R. Quandt (1986): Betting and Equilibrium, https://doi.org/10.2307/1884650
- Racetrack betting is a simple investment situation where individuals invest money for uncertain returns, and the paper discusses various aspects of this, including the relationship between objective and subjective probabilities of winning, risk-loving behavior among bettors, and the efficiency of the betting market.”
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.
