The Efficiency of Sport Betting Markets: An Analysis Using Arbitrage Trading within Super Rugby

Abstract

A topic of ongoing interest is the level of market efficiency within sports betting. This paper analyzes the inefficiency embedded in the Super Rugby betting market. Robust methodologies widely utilized in the European football betting market are adapted and applied in our analysis of Super Rugby betting. Surprisingly, one in every three trades was found to provide an arbitrage opportunity, strongly suggesting at least weak form market inefficiency. We provide empirical evidence of differing odds quoted by bookmakers from different geographical areas, and show how such phenomena contributed to the above-mentioned inefficiency. Finally, a simple betting strategy to exploit arbitrage is implemented and analyzed for robust conclusions. Despite testing with varying degrees of assumptions in our practical experiment, positive returns above the benchmark risk-free rate were observed.

Keywords

Sport betting bookmakers market efficiency odds arbitrage Super Rugby

Get full access to this article

View all access options for this article.

References

Ashiya

(2015). Lock! Risk-Free Arbitrage in the Japanese Racetrack Betting Market. Journal of Sports Economics, 16(3), 322–330.

Burkey

(2005). On arbitrage and market efficiency: An examination of NFL wagering. New York Economic Review, 36(1), 13–28.

Demir

, Danis

, & Rigoni

(2012). Is the Soccer Betting Market Efficient? Cross

-Country Investigation Using the Fibonacci Strategy. The Journal of Gambling Business and Economics, 6(2), 29–49.

Fama

E. F.

(1970). Efficient capital market: A review of theory and empirical work. The Journal of Finance, 25(2), 383–417.

Franck

, Verbeek

, & Nuesch

(2012). Inter-market arbitrage in sport betting. Econmica, 80, 300–325.

Goddard

, & Asimakopoulos

(2004). Forecasting Football Results and the Efficiency of Fixed-odds Betting. Journal of Forecasting, 23, 51–66.

Graham

, & Stott

(2008). Predicting bookmaker odds and efficiency for UK football. Applied Economics, 40, 99–109.

Hodges

, Thompkins

, and Ziemba

(2003). “The Favorite Longshot Bias in SP500 and FTSE100 Index Futures Options.” EFA 2003 Annual Conference Paper No. 135.

Kuypers

(2000). Information and efficiency: An empirical study of a fixed odds betting market. Applied Economics, 32(11), 1353–1363.

10.

Lane

, & Ziemba

W. T.

(2004). Jai alai arbitrage strategies. The European Journal of Finance, 10(5), 353–369.

11.

Levitt

S. D.

(2004). Why are gambling markets organized so differently from financial markets? The Economic Journal, 114(495), 223–246.

12.

Marshall

B. R.

(2009). How quickly is temporary market inefficiency removed? Quarterly Review of Economics and Finance, 49, 917–930.

13.

Milliner

, White

, & Webber

D. J.

(2009). A statistical development of fixed odds betting rules in soccer. Econometrica, 56(223), 323–341. SE: New Series.

14.

Moskowitz Tobias J., Asset Pricing and Sports Betting (July 1, 2015). Chicago Booth Research Paper No. 15–26. Available at SSRN: https://ssrn.com/abstract=2635517

15.

Paton

, & Vaughan Williams

(2005). Forecasting outcomes in spread betting markets: Can bettors use “quarbs” to beat the book? Journal of Forecasting, 24, 139–154.

16.

Pope

P. F.

, & Peel

D. A.

(1989). Information, prices and efficiency in a fixed-odds betting market, Economica, 56(223), 323–341. SE: New Series.

17.

Sauer

R. D.

(1998). The economics of wagering markets. Journal of Economic Literature, 36, 2021–2064.

18.

Shin

H. S.

(1993). Measuring the incidence of insider trading in a market for state-contingent claims. Economic Journal, 103, 1141–1153.

19.

Vaughan

Williams L.

(1999). Information efficiency in betting markets: A survey. Bulletin of Economic Research, 51, 1–39.

20.

Vaughan

Williams L.

(2005). Information Efficiency in Financial and Betting Markets. Cambridge University Press: Cambridge, UK.

21.

Vlastakis

, Dotsis

, & Markellos

R. N.

(2009). How efficient is the European football betting market? Evidence from arbitrage and trading strategies. Journal of Forecasting, 28(5), 426–444.

22.

Wolfers

and Zitzewitz

(2004). “Prediction Markets.” Journal of Economic Perspectives, 18(2):107–126.

23.

Woodland

L. M.

, & Woodland

B. M.

(1994). Market efficiency and the favorite-longshot bias: The baseball betting market, The Journal of Finance, 49(1), 269–279.