Caroline Wozniakci crashed out of the US Open last night after starting at odds of 1.10, or a 91% chance of winning. I am the only one thinking that perhaps McIlroy’s should be banned from seeing Caroline at major tournaments?!?!
This is being heralded as a ‘shock exit’. But how much of a shock is it? I looked at all the results from the first round of action at Flushing meadows and it reveals a wonderful thing about the market. Just how efficient a pricing mechanism it is.
We utilise this fact in Tennis trader where the tool can pinpoint surprisingly accurate forecasts for game and set odds just from the starting price of match.
I tend to analyse this sort of stuff in arrears but thought I would have a look at it real time this year. In all the first round matches so far I looked at the starting odds of all the favourites and converted them into implied chance. Say somebody started at odds of 2.00 then I would do the calculation 1/2.00 = 0.50 or 50% chance of a win.
I then added up and averaged all these starting odds, that came to 73.5%. In other words the market was saying that, on average, 73.5% of favourites would win in the first round.
I then added up and averaged how many favourites did actually win in the first round. The answer, 74.3%! Isn’t the market a beautiful pricing mechanism!