Efficiency of Horse Racing Markets on Betfair

[Trading96]

How close to 100% efficient do you think the markets are? I often have heard SP reflects the true value of a horse, and the only way to win by punting is to beat SP.

But is this really true?

Blanket strategies like laying the favourite or backing a 10/1 shot, will of course just about break even but that is because, in my opinion the market has got the price 20% too high just as frequently as the market has got the price 20% too low.

Thoughts?

[Derek27]

How close to 100% efficient do you think the markets are? I often have heard SP reflects the true value of a horse, and the only way to win by punting is to beat SP.

But is this really true?

Blanket strategies like laying the favourite or backing a 10/1 shot, will of course just about break even but that is because, in my opinion the market has got the price 20% too high just as frequently as the market has got the price 20% too low.

Thoughts?

I presume you're referring to Betfair and not industry SP ?

Betfair SP is certainly not a true reflection of a horses chances of winning - your second suggestion is obviously correct.

If a horse wins comfortably at 10-1 and the race took place again a few weeks later it goes without saying that, in most cases, it would not be anywhere near 10-1, unlike roulette where each number has the same chance on the next spin. This would indicate that most people, with hindsight, would say the horse was overpriced with the favourite and others under priced.

[Euler]

The reason that most markets are efficient is that you aggregate all the great and bad guesses to average a good guess. I've studied the market extensively and it's typically most efficient near the off, but not at the off or at SP typically. Betdaq XSP is more efficient than Betfair BTW.

Today we had the lowest weight horse heavily gambled. It seemed to have a 20% better chance of winning than when the market was formed, but it didn't and it never really came into contention. That's not very efficient.

[ShaunWhite]

It seemed to have a 20% better chance of winning than when the market was formed, but it didn't and it never really came into contention. That's not very efficient.

How are you judging the true value of that horse? Yes it shortened considerably, but was the price at formation correct?

....unless you're saying that through research you have found that horses that shorten by a certain amount from formation underperform significantly? In which case thanks for the info, it backs up what I suspected but can't prove

[Euler]

List for me the number of reasons that a horse could suddenly improve it's chances 20% in ten minutes.

[weemac]

The horse doesn't have to do anything. It's not the chance of its winning/losing that changes; it's the perception of its chance of winning/losing that changes, as evidenced by money flow. There are numerous reasons why that perception could change, not least because there are numerous reasons why the original perception might have been inaccurate, at least in general terms.

[boardrep]

within the last 10 it could have been something someone saw ,something someone said or just something that very few someones knew and didnt tell the other someones until they wanted them to know

[Kafkaesque]

The horse doesn't have to do anything. It's not the chance of its winning/losing that changes; it's the perception of its chance of winning/losing that changes, as evidenced by money flow. There are numerous reasons why that perception could change, not least because there are numerous reasons why the original perception might have been inaccurate, at least in general terms.

Have to disagree. How is money flow evidence exactly?

As Euler has mentioned already, it's the good and bad judgements combined is the key. The less correct the current price is compared to the true chance, the easier it'll be to "have a good judgement", and that's what makes the price move. It's been proven time and again, that with a large number of people estimating something. that they have a reasonable chance of knowing (just being somewhere in the vicinity of the correct estimation, doesn't even have to be close), then the average estimate of all those people is spooky close to correct. If a selection has precisely 50% chance of being a winner, and is trading 2.10ish, then the market corrects. Not because of perception, but because more and more liquidity is entering as it gets closer to the off, with the good judgements slightly outweighing the bad, more often than not. Kick in the smart entering market at various stages, where the majority will obviously take the +ev back rather than the -ev lay.

[Derek27]

I agree with weemac, the Betfair market nowhere near reflects true probability but accurately reflects the probabilities that people perceive. If a horse has a precise probability of 50% and is trading at 2.1, it's quite possible it might drift to 3.5 - it's chances are irrelevant, it's down to punter's perceptions which are often wrong. I've often seen big drifters hack-up, proving the rumours or whatever caused the drift to be wrong.

The market is volatile enough when a horses chances of winning doesn't change. Occasionally they can change massively half-an-hour before the race. For example, a change in the going, the revelation of draw bias, a sole front runner being pulled out of the race which would advantage/disadvantage some horses substantially.

[ShaunWhite]

List for me the number of reasons that a horse could suddenly improve it's chances 20% in ten minutes.

That's a trick question It's chances didn't change 20%, it's price did. Value seeking 101.

I'm sure you didn't mean that the horse was 20% from it's true price, just that big moves often go beyond reality. But what I'd like to know is, How do horses who shorten 20% in the last ten minutes perform against BSP? (anyone?)

That would give an approximation of how significant this move was in respect of acheiving a hypertically efficient BSP for the horse.

That would be much more interesting because this horse in particular was almost certainly the wrong price at the start, and the wrong price at the end, just as they probably all are to some extent or another.

I'd imagine BSP deviation from True Value would be a bell curve, usually close and rarely miles off, but could you ever prove it ? (maths challenge)

[Kafkaesque]

I agree with weemac, the Betfair market nowhere near reflects true probability but accurately reflects the probabilities that people perceive. If a horse has a precise probability of 50% and is trading at 2.1, it's quite possible it might drift to 3.5 - it's chances are irrelevant, it's down to punter's perceptions which are often wrong. I've often seen big drifters hack-up, proving the rumours or whatever caused the drift to be wrong.

The market is volatile enough when a horses chances of winning doesn't change. Occasionally they can change massively half-an-hour before the race. For example, a change in the going, the revelation of draw bias, a sole front runner being pulled out of the race which would advantage/disadvantage some horses substantially.

What I was referring to was the price at the off (or close to it) being a reflection of true chance rather than perception, which I might not have been clear enough about. Obviously if a 50% shot trades between 2.10 and 3.50 - without it being down to new information - then the true chance reflected in both those extremes cannot be true. So yes, perception plays a role in the pricing as the market finds its level.

Also, it is an observation for most markets and the average of all markets. There will clearly be outliers, with markets that isn't very efficient, but on average is another matter. It's semantics in the end, and we might actually be as to what role perception. The outliers occur imho, because there'll always be markets here and there, where more bad judgements enter the market than the other way. Is that perception? Perhaps. But on average the sum perception and smart money will be close to correct and push the price towards true value.

I should really have mentioned that my understanding is based on sports other than horses. So I might have jumped the gun And the efficiency is different for horses, which is why it's such good trading opportunities?

FWIW:

https://www.pinnacle.com/en/betting-art ... 8P6NRD6ZYK

[Derek27]

I should really have mentioned that my understanding is based on sports other than horses. So I might have jumped the gun And the efficiency is different for horses, which is why it's such good trading opportunities?

My brother is a statistician who use to work on the statistical modules that calculate probabilities for the bookies to compile their odds. From what he tells me it is possible to quite accurately calculate probabilities for the premiership title (not sure about individual matches), and perhaps other sports. As you suggested it's not possible for horse racing, the size of the field being just one of many factors.

[LucyLoo]

Today we had the lowest weight horse heavily gambled. It seemed to have a 20% better chance of winning than when the market was formed, but it didn't and it never really came into contention. That's not very efficient.

Did you trade the steam and the reversal?

[marksmeets302]

One definition of an efficient market is one in which no one can structurally can get a better return than the risk free interest rate. This forum is full of people that make a living operating on the betfair markets.

I do think the horse racing markets are becoming more efficient. Strategies that once worked have stopped to perform well.

[Crazyskier]

I do think the horse racing markets are becoming more efficient. Strategies that once worked have stopped to perform well.

Me too

CS