Financial economics of racetrack betting

Racetrack betting has close parallels with investing on financial markets and provides a relevant context for investigating attitudes to risk and the informational efficiency of markets.  Differences in market prices (odds offered) across different markets (win, show, place, quinella, different bookmakers) whose payout (dividend) depends on the same risky outcome (a horse race) raise the prospect of arbitrage opportunities.

This article uses New Zealand racetrack betting data to investigate the differences in pricing between win and show/place betting:

  • McCulloch, Brian and Van Zijl, Tony (1986) ‘Direct test of Harville’s multi-entry competitions model on race-track betting data’, Journal of Applied Statistics, 13(2):213-220. [Download: Harville]