Abstract
I find that the optimal price of a bet for a risk-averse bookmaker is a function of elasticity of demand and the number of outcomes of the betting event. In the presence of shocks to the order flow, however, the optimal price can change, and large adjustments can create arbitrage opportunities for informed investors. Using a large sample of online bookmakers and a unique data set of real-time betting odds, I find strong support for these predictions. Overall, the results shed new light on the efficiency of online betting prices.
| Original language | English |
|---|---|
| Pages (from-to) | 344-363 |
| Number of pages | 20 |
| Journal | Journal of Economic Behavior and Organization |
| Volume | 186 |
| Issue number | June 2021 |
| DOIs | |
| Publication status | Published - Jun 2021 |
Bibliographical note
Funding Information:I would like to thank Daniel Houser (the editor), an anonymous referee, Franklin Allen, Gennaro Bernile, Jeffrey Butler, Gonul Colak, Nam Huong Dau, Marco Pagano, Facundo Piguillem, Valerio Pot?, and participants at the French Finance Association meetings at the University of Li?ge, the European Financial Management Association meetings at Nyenrode University, and the International Atlantic Economic Society Best Undergraduate Paper Competition in Montreal for many helpful comments.
Publisher Copyright:
© 2021 The Author(s)
Keywords
- Arbitrage
- Betting market
- Market efficiency
- Risk aversion