"Are betting markets efficient? <HR style="COLOR: #fdde82" SIZE=1><!-- / icon and title --><!-- message -->Simple Question."
compared to what? If they provide a price and there is a narrow gap between the bid & ask you would say they are efficient. Define narrow gap and you can be the judge.
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compared to what? If they provide a price and there is a narrow gap between the bid & ask you would say they are efficient. Define narrow gap and you can be the judge.
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"When money is put into the stock market, it is done with the aim of generating a return on the capital invested. Many investors try not only to make a profitable return but also to outperform, or beat, the market.
However, market efficiency - championed in the efficient market hypothesis (EMH), formulated by Eugene Fama in 1970 - suggests that, at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price since no one has access to information not already available to everyone else."
from investopedia.com
However, market efficiency - championed in the efficient market hypothesis (EMH), formulated by Eugene Fama in 1970 - suggests that, at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price since no one has access to information not already available to everyone else."
from investopedia.com
The opening line is not efficient, in that the linesmakers are not really giving an opinion on who wins the game, but rather to try to generate equal action on both sides. Once bettors (particularly sharps who bet early, right after the opening line comes out) start betting into a line, it becomes as close to efficient as it can get. Very similar IMO to a stock IPO.
The stock market, I believe, is also very close to an efficient market, and it is no shocker that most true money makers in the stock market have access to IPO's before anyone else, and that true money makers in sports wagering get in on a a line before anyone else.
HW
The stock market, I believe, is also very close to an efficient market, and it is no shocker that most true money makers in the stock market have access to IPO's before anyone else, and that true money makers in sports wagering get in on a a line before anyone else.
HW
heatwave, how are you doing buddy?
"The opening line is not efficient, in that the linesmakers are not really giving an opinion on who wins the game, but rather to try to generate equal action on both sides."
I have some issues with this adage, I don't generally believe it to be true. If the opening line was merely an opinion splitter, then they'd live themselves wide open to losses. What I can see is that it's as much an action divider as it is an objective assesment on the probabilities, with the bookmaker shading the line in as much as to get better balance in the events, but not enough to make one side favourable (or too favourable) to betting. I agree with the rest of what you said.
woody,
"Efficiency is positively correlated with the liquidity of the market."
Αnd thus? I think I am getting what you are saying, can you be a bit more specific?
"The opening line is not efficient, in that the linesmakers are not really giving an opinion on who wins the game, but rather to try to generate equal action on both sides."
I have some issues with this adage, I don't generally believe it to be true. If the opening line was merely an opinion splitter, then they'd live themselves wide open to losses. What I can see is that it's as much an action divider as it is an objective assesment on the probabilities, with the bookmaker shading the line in as much as to get better balance in the events, but not enough to make one side favourable (or too favourable) to betting. I agree with the rest of what you said.
woody,
"Efficiency is positively correlated with the liquidity of the market."
Αnd thus? I think I am getting what you are saying, can you be a bit more specific?
"Efficiency is positively correlated with the liquidity of the market."
Nothing really profound. On Betfair you see razor thin two way markets when the market has high liquidity, (such as $10,000 offers and $1,000,000 in play), whereas markets with low liquidity have often wide margins. Low liquidity is seen in NBA and MLB when posted 2 days before gametime and there are few $ offered. Another area of low liquidity can be in play handicap games where the money line takes more in play action, due to the European bias.
Regarding information the in play market responds so well that you can predict the outcome of points in a Wimbledon tennis match you are watching since there is a satellite delay in N. America.
The stock market illustrates the same point. I'm sure there is a simple mathematical function that relates the buy/ask spread to market volume. In addition the more players that are in the stock market the more information they will in total have available. Each player will have a somewhat different set of information and/or interpretation that will make an offer or ask more acceptable leading to a diminution of the spread.
Nothing really profound. On Betfair you see razor thin two way markets when the market has high liquidity, (such as $10,000 offers and $1,000,000 in play), whereas markets with low liquidity have often wide margins. Low liquidity is seen in NBA and MLB when posted 2 days before gametime and there are few $ offered. Another area of low liquidity can be in play handicap games where the money line takes more in play action, due to the European bias.
Regarding information the in play market responds so well that you can predict the outcome of points in a Wimbledon tennis match you are watching since there is a satellite delay in N. America.
The stock market illustrates the same point. I'm sure there is a simple mathematical function that relates the buy/ask spread to market volume. In addition the more players that are in the stock market the more information they will in total have available. Each player will have a somewhat different set of information and/or interpretation that will make an offer or ask more acceptable leading to a diminution of the spread.
"Nothing really profound. On Betfair you see razor thin two way markets when the market has high liquidity, (such as $10,000 offers and $1,000,000 in play), whereas markets with low liquidity have often wide margins. Low liquidity is seen in NBA and MLB when posted 2 days before gametime and there are few $ offered. Another area of low liquidity can be in play handicap games where the money line takes more in play action, due to the European bias."
Ι couldn't agree more with these. My query though in regards to all that is, how come when analysing past results for the champions league in betfair, one can find profitable betting senarios if the market is indeed efficient. Reaching a concensus price that is as you well said razor sharp and with extremely high liquidity and which represents the sum total of all available information, instead of equating to the odds with the more accurate predictive value, it equates to these which reflect the various betting biases at equilibrium
Ι couldn't agree more with these. My query though in regards to all that is, how come when analysing past results for the champions league in betfair, one can find profitable betting senarios if the market is indeed efficient. Reaching a concensus price that is as you well said razor sharp and with extremely high liquidity and which represents the sum total of all available information, instead of equating to the odds with the more accurate predictive value, it equates to these which reflect the various betting biases at equilibrium
JackDee said:
Simply because you are looking at past results and finding teams that somehow blew it.
I agree that the market is efficient in reaching the weighted consensus outlook of the participants. That does not mean that the probability of a win, predicted by the market, will be borne out in practice. Hence the cliche "they still have to play the game".
If you have a consistent profitable scenario make the best of it until it falls apart.
we essentially agree here.
"Simply because you are looking at past results and finding teams that somehow blew it."
Yes, in a way, I am actually looking at sets of data in particular objectifiable situations, demonstrating that the market didn't accurately predict the probabilities, on the whole.
"That does not mean that the probability of a win, predicted by the market, will be borne out in practice."
Yes, but that's what the efficient market hypothesis denotes.
"Simply because you are looking at past results and finding teams that somehow blew it."
Yes, in a way, I am actually looking at sets of data in particular objectifiable situations, demonstrating that the market didn't accurately predict the probabilities, on the whole.
"That does not mean that the probability of a win, predicted by the market, will be borne out in practice."
Yes, but that's what the efficient market hypothesis denotes.
"I don't believe betting lines are an efficient market if you go by your definition "at any given time, prices fully reflect all available information on a particular stock and/or market". If you have a profitable betting scenario you have found information that is not reflected in the price."
Yeah but my point is, and I could be wrong surely, that the information reflected on the price goes both ways, accounting for both the objective probabilities and the gambling biases, which are two distinct, contradictory forces.
In your example you are essentially saying that the bookmakers chose to set the total at such a low price that they wouldn't risk one sided action, a price however that was not reflective of the objective probabilities of the outcome, and hence opened a betting opportunity for one with a discerning eye. So in essense they chose the lesser of two evils. That, and the limited time frame this does occur in are all points we agree on. I am afraid though that most of the time they can do both (incorporate the bias and reflect the probability correctly) so as to not offer any openings. The example bears some relation to the paper I ve sent you.
Jack.
Yeah but my point is, and I could be wrong surely, that the information reflected on the price goes both ways, accounting for both the objective probabilities and the gambling biases, which are two distinct, contradictory forces.
In your example you are essentially saying that the bookmakers chose to set the total at such a low price that they wouldn't risk one sided action, a price however that was not reflective of the objective probabilities of the outcome, and hence opened a betting opportunity for one with a discerning eye. So in essense they chose the lesser of two evils. That, and the limited time frame this does occur in are all points we agree on. I am afraid though that most of the time they can do both (incorporate the bias and reflect the probability correctly) so as to not offer any openings. The example bears some relation to the paper I ve sent you.
Jack.
