improving prediction market forecasts by detecting and correcting possible over reaction to price movements abstract we examine the impact of price trends on the accuracy of forecasts from prediction markets in particular we study an electronic betting exchange market and construct independent variables from market price odds time series from 6058 individual markets a dataset consisting of over 8 4 million price points using a conditional logit model we find that a systematic relationship exists between trends in odds and the accuracy of odds implied event probabilities the relationship is consistent with participants over reacting to price movements in particular in different time segments of the market increasing and decreasing odds lead respectively to under and over estimation of odds implied probabilities we develop a methodology to detect and correct the erroneous forecasts associated with these trends in odds in order to considerably improve the quality of forecasts generated in prediction markets

exploring decision makers use of price information in a speculative market we explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements the horse race betting market is an ideal environment to explore these issues a conditional logit model is constructed to determine winning probabilities based on bookmakers closing prices and the time indexed movement of prices to the market close we incorporate a technique for extracting predictors from price odds curves using orthogonal polynomials the results indicate that closing prices do not fully incorporate market price information particularly information that is less readily discernable by market participants

information and efficiency goal arrival in soccer betting an efficient market incorporates news into prices immediately and fully tests for efficiency in financial markets have been undermined by information leakage we test for efficiency in sports betting markets real world markets where news breaks remarkably cleanly applying a novel identification to high frequency data we investigate the reaction of prices to goals scored on the cusp of half time this strategy allows us to separate the market s response to major news a goal from its reaction to the continual flow of minor game time news on our evidence prices update swiftly and fully

assessing bettors ability to process dynamic information policy implications regulation is often employed to encourage the provision of readily interpretable explicit information to betting markets in an effort to promote their efficiency this approach is supported by a considerable volume of laboratory based research which suggests that individuals make poor judgments in the face of implicit dynamic information this article investigates to what extent horserace bettors who have strong incentives to make good probability judgments require the regulator s protection from such hostile information environments in particular we examine the accuracy of the subjective probabilities of bettors concerning 16 344 horses in 1671 races we find that bettors are skilled in adopting effective heuristics to simplify their dynamic information environment and even in the face of restricted information develop well calibrated judgments using outcome feedback a number of factors that help bettors to achieve good calibration are identified and the implications for market regulation are discussed

a general proposition on the design of a neutral business tax abstract a simple and general means of levying a business tax that is neutral in the sense that it does not affect the firm s decisions at the margin is discussed in particular we analyze the effect of a business tax of our design on the investment decision of the firm the well known imputed income and immediate write off methods of levying a neutral business tax are found to be special cases of our general tax design the implication of our results is that a neutral pure profits tax can be levied without the informational difficulties of the imputed income method or the cash flow disadvantages of the immediate write off method

tests of the efficiency of racetrack betting using bookmaker odds the objective of this study is to evaluate the informational efficiency of the market for betting on horse races whereas the price data used in previous studies have been drawn largely from totalizator parimutuel odds the data used in this study are derived from bookmaker odds the availability of a series of prices throughout betting facilitates the use of filter tests to evaluate market efficiency we conclude that this gambling market is efficient in the use of information supplied via both the movements in odds during the course of betting and the selections of newspaper tipsters however there is evidence to suggest that those with access to private information can earn positive returns from gambling

rational herding in financial economics abstract this paper briefly describes recent papers on the economics of rational herding in financial markets some models can predict perfect herding in which rational agents all act alike without any countervailing force such herding typically arises either from direct payoff externalities negative externalities in bank runs positive externalities in the generation of trading liquidity or in information acquisition principal agent problems based on managerial desire to protect or signal reputation or informational learning cascades the paper also provides a few pointers to related literature and suggests issues to be addressed in future research

inside information in a betting market inside information concerning a risky asset is presumed to be beneficial to its holder measurement of the impact and benefit of inside information is difficult because its use for financial gain is often illegal ideally one would like to investigate and compare two mutually isolated groups one with and the other without access to inside information the australian horse betting market offers such an opportunity it is found that even exposure to second hand inside information effects a change in behavior a rise in payoffs and adds power and significance to the prediction of race results copyright 1995 by royal economic society

information aggregation and belief elicitation in experimental parimutuel betting markets this paper studies the impact of belief elicitation on informational efficiency and individual behavior in experimental parimutuel betting markets in one treatment groups of eight participants who possess a private signal about the eventual outcome play a sequential betting game the second treatment is identical except that bettors are observed by eight other participants who submit incentivized beliefs about the winning probabilities of each outcome in the third treatment the same individuals make bets and assess the winning probabilities of the outcomes market probabilities more accurately reflect objective probabilities in the third than in the other two treatments submitting beliefs reduces the favorite longshot bias and making bets improves the accuracy of elicited beliefs a level k framework provides some insights about why belief elicitation improves the capacity of betting markets to aggregate information

growth versus security in dynamic investment analysis this paper concerns the problem of optimal dynamic choice in discrete time for an investor in each period the investor is faced with one or more risky investments the maximization of the expected

searching for positive returns at the track a multinomial logic model for handicapping horse races this paper investigates fundamental investment strategies to detect and exploit the public s systematic errors in horse race wager markets a handicapping model is developed and applied to win betting in the pari mutuel system a multinomial logit model of the horse racing process is posited and estimated on a data base of 200 races a recently developed procedure for exploiting the information content of rank ordered choice sets is employed to obtain more efficient parameter estimates the variables in this discrete choice probability model include horse and jockey characteristics plus several race specific features hold out sampling procedures are employed to evaluate wagering strategies a wagering strategy that involves unobtrusive bets with a side constraint eliminating long shot betting appears to offer the promise of positive expected returns even in the presence of the typically large track take encountered at thoroughbred racing events

efficiency of the market for racetrack betting many racetrack bettors have systems since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature fundamental strategies utilize past data available from racing forms special sources etc to handicap races the investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take technical systems require less information and only utilize current betting data they attempt to find inefficiencies in the market and bet on such overlays when they have positive expected value previous studies and our data confirm that for win bets these inefficiencies which exist for underbet favorites and overbet longshots are not sufficiently great to result in positive profits this paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple the system was tested on data from santa anita and exhibition park using exact and approximate solutions that make the system operational at the track given the limited time available for placing bets and found to produce substantial positive profits a model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies

blue and red cars or blue cars only a note on product variety the number and variety of products observed at any point of time in a given industry results from a complex selection mechanism where various economic forces interact some of these forces proceed from the demand behaviour of the market for instance the need for product variety should increase the larger the degree of income or taste differences between consumers similarly product variety may be more desirable from the consumer s viewpoint the smaller the degree of substitutability between the quantity of a given product and its quality a copious meal may not compensate for second rate food on the other hand the opening of a new product line is generally accompanied by important overhead costs these costs may lead to a restriction in the variety of goods that it would otherwise be desirable to produce sometimes also a firm in a given industry may be constrained by technical feasibility or institutional reasons to produce a single or a restricted set of products only though in other industries multi product firms are allowed to cover the whole spectrum of goods the product selection mechanism arising in the two types of industries should differ since in the first case competition between product lines takes place between different firms and in the second the same competition arises inside the firm these reasons make the problem of product selection one of the most difficult subjects of monopolistic competition in spite of this difficulty recent work in the field has opened avenues for further research of particular interest is the study of the welfare implications of this selection mechanism and its links with price or quality regulation policies in this respect contributions by sheshinski 1976 and spence 1975 have revealed that when monopolists have latitude in determining the quality attribute of their product profit maximizing decisions generally deviate from the social optimum in terms of quality assessments on the other hand stern 1974 and meade 1974 have provided examples showing that the variety of products that should be produced according to welfere criteria does not always coincide with the combination of products that is profitable to produce in an unregulated market it is with these contributions that the present paper is concerned the difference between social optimum and profitability is imputed by meade to the interaction between two major forces

probabilistic forecasting with discrete choice models evaluating predictions with pseudo coefficients of determination abstract probabilistic forecasts from discrete choice models which are widely used in marketing science and competitive event forecasting are often best evaluated out of sample using pseudo coefficients of determination or pseudo r 2 s however there is a danger of misjudging the accuracy of forecast probabilities of event outcomes based on observed frequencies because of issues related to pseudo r 2 s first we show that mcfadden s pseudo r 2 varies predictably with the number of alternatives in the choice set then we evaluate the relative merits of two methods bootstrap and asymptotic for estimating the variance of pseudo r 2 s so that their values can be appropriately compared across non nested models finally in the context of competitive event forecasting where the accuracy of forecasts has direct economic consequence we derive new r 2 measures that can be used to assess the economic value of forecasts throughout we illustrate using data drawn from uk and ireland horse race betting markets

the progress of the betting in a baseball game the development of the internet has led to the creation of countless new markets among them online in game betting markets for sporting contests we examine the behavior of prices as events unfold in a baseball game specifically we compare the evolution of prices during a game with probability estimates generated by an empirical model of scoring in baseball we find that price changes correspond closely to changes in the probability of winning for plays of both small and dramatic impact nevertheless data limitations inhibit the ability to make strong claims regarding the hypothesis of efficient pricing

do investors herd in emerging stock markets evidence from the taiwanese market abstract this paper has three main contributions to the literature on investor herds first it extends investor herding studies to an emerging yet relatively sophisticated taiwanese stock market at the sector level by using firm level data second it employs different methodologies designed to test the existence of investor herds to better understand the sources of herd behavior third it discusses the implications of different herding measures for investors exposed to systematic and unsystematic risks we find that the linear model based on the cross sectional standard deviation cssd testing methodology yields no significant evidence of herding however the non linear model proposed by chang et al 2000 and the state space based models of hwang and salmon 2004 lead to consistent results indicating strong evidence of herd formation in all sectors we also find that the herding effect is more prominent during periods of market losses our results suggest limited diversification opportunities for investors in this market especially during periods of market losses when diversification is most needed further research is necessary to see whether similar findings hold for other emerging markets

corporate taxation and the cost of holding inventories this paper investigates the impact of the corporate tax system and inflation upon the user cost of holding inventories a simple dynamic model of the firm is set up in which the firm chooses an output and an inventory policy so as to maximize its equity value the firm finances its inventory stock through equity and debt expressions for the user cost of inventory capital are derived when the firm is allowed fifo and lifo accounting for tax purposes it is shown that an increase in the inflation rate will reduce the user cost under lifo but will have an ambiguous effect under fifo increases in the corporate tax rate have an ambiguous effect on the user cost we then examine circumstances under which corporate taxation and inflation will not alter the inventory and output decisions the model is extended to include personal taxation and the inventory deduction and a numerical calculation of the user cost of capital using stylized facts for canada is given impot slur les societes et coait des inventaires ce m6moire 6tudie l impact du systeme d imposition des soci6t6s et de l inflation sur les cofits d inventaires on developpe un modele dynamique de l entreprise dans lequel la firme choisit un niveau de production et une politique d inventaires de facon h maximiser la valeur de l avoir des actionnaires l entreprise finance ses inventaires par capital actions et par emprunts les cofits d inventaires sont d6riv6s sous l un et l autre des r6gimes de comptabilit6 permis aux fins du calcul de l imp6t le r6gime fifo first in first out et le r6gime lifo last in first out on montre que l acc6leration du taux d inflation r6duit les cofuts d inventaires en r6gime lifo mais a des effets ambigus en r6gime fifo l impact sur les cofits d inventaires d un accroissement du taux d imposition sur les soci6t6s est aussi ambigu les auteurs s attachent a etablir les conditions dans lesquelles l imposition des societ6s et l inflation n affectent pas les d6cisions quant au niveau de production ou h la politique d inventaires le modele de base est enrichi pour pouvoir tenir compte de l imp6t personnel et des degrevements permis sur les inventaires et les auteurs ajoutent un exemple num6rique du calcul des cofits d inventaires pour un contexte stylis6 approximant le cas canadien an earlier version of this paper was presented at stanford university and at the canadian economics association meetings in halifax the authors are grateful to participants at these presentations and to the editors and referees of this journal for many useful suggestions and comments financial assistance from the sshrc is gratefully acknowledged car dian journal of economics revue canadienne d economique xv no 2 may mai 1982 printed in canada imprim6 au canada 0008 4085 82 0000 0278 01 50 1982 canadian economics association this content downloaded from 157 55 39 203 on wed 14 jun 2017 18 06 46 utc all use subject to http about jstor org terms corporate taxation and the cost of holding inventories 279

marginal effective tax rates for capital in the canadian mining industry the authors model a firm that explores develops and extracts a depletable asset taking into account various features of canadian corporate and ontario and quebec mining tax law they derive the user cost of capital and effective tax rate for investments undertaken by a mining firm calculations based on 1985 tax law show that there is considerable dispersion in effective tax rates most being negative especially for processing assets the authors conclude that these taxes have been very poor collectors of mining rents compared to a neutral cash flow tax coauthors are neil bruce ken mckenzie and jack mintz

informational cascades a mirage abstract experimental research found contradictory results regarding the occurrence of informational cascades whereas anderson and holt anderson l r holt c a 1997 information cascades in the laboratory the american economic review 87 847 862 confirmed the model of banerjee banerjee a v 1992 a simple model of herd behavior the quarterly journal of economics 107 797 817 and bikhchandani et al bikhchandani s hishleifer d welch i 1992 a theory of fads fashion custom and cultural change as informational cascades journal of political economy 100 992 1026 through lab tests huck and oechssler huck s oechssler j 2000 informational cascades in the laboratory do they occur for the right reasons journal of economic psychology 21 661 671 came to contradictory results on crucial issues this article presents experimental evidence supporting further doubts concerning bayesian informational cascades just under two thirds of all decisions are characterized by an excessive orientation towards the private signal and only a small number of the subjects

historical presidential betting markets this paper analyzes the large and often well organized markets for betting on u s presidential elections that operated between 1868 and 1940 four main points are addressed first we show that the market did a remarkable job forecasting elections in an era before scientific polling second the market was fairly efficient despite the limited information of participants and active attempts to manipulate the odds third we argue political betting markets disappeared largely because of the rise of scientific polls and the increasing availability of other forms of gambling finally we discuss lessons this experience provides for the present

racetrack betting and informed behavior abstract horse racing data permit interesting tests of attitudes toward risk the present paper studies a new sample of racetrack results from atlantic city new jersey the questions examined are 1 are the market odds the best data for predicting the order of finish 2 do horses go off at odds that reflect their true probability of winning 3 is there any evidence that late bettors have better information than early bettors it is found that market odds predict the order of finish well but that favorites are good bets and long shots are poor ones the data suggest that there does exist an informed class of bettors and that bettors are on the whole neither risk neutral nor risk averse

searching for the favourite longshot bias down under an examination of the new zealand pari mutuel betting market this paper tests for the presence of the favourite longshot bias in a new setting this bias 150 the tendency for bettors to underbet favourites and overbet longshots 150 has been found in most studies of pari mutuel and bookmaking betting markets in the usa the uk and australia however there is growing evidence that in at least some pari mutuel betting markets there is no favourite longshot bias this paper examines the previously unexplored new zealand pari mutuel betting market on horse races for evidence of this bias utilizing a large sample of recent new zealand thoroughbred horse races it is found that while early off track bettors price this bias into odds late on and off track bettors eliminate much of the bias by the close of betting that is the results reinforce the view that not all pari mutuel betting markets are characterized by a favourite longshot bias at the close of betting evidence is also found that late bettors in this market are smart bettors