A Case Study on the Informational Efficiency of Markets: The Market for Horse Racing in Australia
This paper describes a study of the informational efficiency of the thoroughbred horse racing market in Australia. It is based on the theory of stock market efficiency which explains the process by which information becomes reflected in share prices. In this paper, the theory is applied to the thoroughbred horse racing market to determine the predictive accuracy of alternative informative sources. The results obtained from the study are consistent with the underlying theory:
(i) aggregated information (as reflected in a consensus of opinions) is a more accurate prediction of success than less information (as reflected in individual opinions), and;
(ii) the most recent information (as reflected in race-time betting odds, known as starting prices) has greater predictive ability than less recent information (as reflected in an earlier consensus of opinions).
The study examines predictive accuracy in a gambling context, but does not consider the profitability of alternative prediction processes.
Unable to display preview. Download preview PDF.
- Asch, P., Malkiel B.G., and Quandt, R.E. (1982). Racetrack Betting and Informed Behavior, Journal of Financial Economics, July, 187–194.Google Scholar
- Bagehot, W. (1971). The Only Game In Town, Financial Analysts Journal, March–April, 12–14,22.Google Scholar
- Ball, R. (1988). What Do We Know About Market Efficiency?, Unpublished Manuscript, University of Rochester, New York.Google Scholar
- Beaver, W.H. (1981). Financial Reporting: An Accounting Revolution, Prentice-Hall.Google Scholar
- Foster, G. (1986). Financial Statement Analysis, 2nd edition, Prentice-Hall.Google Scholar
- Hausch, D., Lo, S.Y. and Zienta, W.T. (1994). Efficiency of Racetrack Betting Markets, Academic Press, Inc.Google Scholar
- Treynor, J.L. (1976). Long Term Investing. Financial Analysts Journal, May–June 1976, 56–9.Google Scholar