Efficiency of Horse Racing Markets on Betfair

[ShaunWhite]

I think the problem with this thread is that we haven't clearly defined efficiency, and may have different ideas of what it is, hence the confusion.

If you instruct a carpenter to cut two three-foot planks of wood, he cuts one 2 feet 10 inches and the other 3 feet 2 inches - is he an efficient carpenter because they average 3 feet exactly ?

Your carpenter isn't efficient, he's inept.

Efficient, implide chance = actual chance. Deviates on individual selections, accurate over a large sample.

'Efficient Market Hypothesis - EMH'
The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

https://www.investopedia.com/terms/e/ef ... thesis.asp

Find and replace Stock with Horse...it's a 'hypothesis' because the individual case described can't be proven although the overall effect can.

[Iron]

An analogy would be that, if the market gives odds of 2.0 on the toss of an unbiased coin that can't land on its side, it's perfectly efficient.

If it gives odds of 2.5, then it's inefficient (although normally you'd expect this inefficiency to be short lived, as it probably won't take long for savvy people with deep pockets to notice that the odds are seriously out).

Jeff

[Euler]

If you want an example of inefficiency and an edge. I stood up last week today and presented a load of different things and traded live. One particular set up occurred that I described beutifully how it would play out and it did exactly that. A week later the same set up occurred and played out exactly the same way. But when I tweeted the chart I was accused of after timing, despite the fact I effectively predicted it a week before it actually happened.

This used to frustrate me, but now I just sit here and realise that these are the people on the other side of the market and there they will stubbornly stay. Regardless of whether the market is efficient or not, you have people that will always be on the wrong side of the bell curve and half the trick is to not be them.

[ShaunWhite]

If you want an example of inefficiency...

The only thing missing from that story was an example of inefficiency.

Did you spot one that was miles from where most of the volume was traded and it came back or something like that?

[Emmson]

Unable to sleep as I am I've enjoyed revisiting this old thread that got a bit testy but nevertheless has some interesting content.

[stueytrader]

Thanks for bringing back up, and interesting read for sure - and still just as relevant for racing markets.

My take has always been that racing markets are efficient taken as large averages (i.e. mushing all runners/prices together). But no-one bets or trades that way.

Therefore selecting specific runners/races is what brings our edge in finding the market inefficiencies.

Just my take on an old debate.

[wearthefoxhat]

An analogy would be that, if the market gives odds of 2.0 on the toss of an unbiased coin that can't land on its side, it's perfectly efficient.

If it gives odds of 2.5, then it's inefficient (although normally you'd expect this inefficiency to be short lived, as it probably won't take long for savvy people with deep pockets to notice that the odds are seriously out).

Jeff

I wonder where Jeff went? Over 6k in posts, (member for 9 years), would have been interesting to flick back on some of those.

[Atho55]

Not sure that the EMH can be applied to the racing market because pockets of information are known to some and not to all which can be introduced to the price at any specific time. Trainer fancies his chances today, tells 10 joint owners, they put bets on at different times. Trainer tells Jockey not to push too hard as horse not fully fit being examples. etc etc


Efficient, implied chance = actual chance. Deviates on individual selections, accurate over a large sample. Quote from earlier SW post. What is the source?

So what does this tell us. it`s a large sample. Actual win % has hit 50% 14 times from 136 times

2.0 odds.jpg

[ShaunWhite]

Efficient, implied chance = actual chance. Deviates on individual selections, accurate over a large sample. Quote from earlier SW post. What is the source?

The source is just my data, the saved api stream for all horses and dogs UK and Aus. (roughly 900,000 selections a year-ish, double that if including place markets).

Rather than picking certain odds and restricting the sample size, do the same test using all horses. With a 100% book, back everything and you'll break even gross, and that's true at any time the book is 100% not just at bsp or - 1min, - 2min etc. If any particular range of prices or sample time was consistanlty under performing or over performing that wouldn't be the case. And this would be easy.

But your chart already shows that, your actual win rate (blue) is approx= implied chance (grey). But due to each horse making up that average being 'inefficient' you have monthly unpredictable deviations (orange).

[ShaunWhite]

My take has always been that racing markets are efficient taken as large averages (i.e. mushing all runners/prices together). But no-one bets or trades that way.

Therefore selecting specific runners/races is what brings our edge in finding the market inefficiencies.

Exactly. But that's expected win rate efficiency Eg if you're straight betting. For trading it's a difference in efficiency at time A and time B that' you need to find. A horse underpriced by 10% at -5min that's still underpriced by 10% at the off isn't much use (no movement) ...unless you know it's underpriced by 10% of course so you can straight lay it.

[sionascaig]

This is a distribution of BSP's (rounded) over last few years on UK horse markets. The spikes occur at crossover points. From a market efficiency point of view it wasn't quite what I expected to see - but then again!

[Atho55]

The Orange line is as I see it under and over performing as I imagine every other odd or range do within the market.

Instead of asking me to do your calculations, do them yourself using the vast array of data you have and post the answer.

The difference between the Blue Line and Grey Line is 2.59%

Deviates on individual selections, = proven. accurate over a large sample. = not proven.

[sionascaig]

The Orange line is as I see it under and over performing as I imagine every other odd or range do within the market.

Instead of asking me to do your calculations, do them yourself using the vast array of data you have and post the answer.

The difference between the Blue Line and Grey Line is 2.59%

Deviates on individual selections, = proven. accurate over a large sample. = not proven.

I wasn't asking you to do any calcs, just thought it was a interesting pic..

Anyhow, useful to include commission into calcs - even if market is efficient it doesn't mean you will make a profit.

(green line is accumulated profit in an efficient market)

[Atho55]

Apologies, I was actually replying to Shaun.

So taking Rank 1 which you have charted, are you of the opinion that selecting odds from the array that Rank 1 starts at will improve your chances?

Have looked at combinations and think it provides a small edge but never taken it any further.

[Atho55]

These are odds I think overperform over the long term I should add....