Efficiency of Horse Racing Markets on Betfair

[Euler]

I've measured various metrics over the years and the book percentage is shrinking, so the market is getting more 'efficient'. But the volatility is getting higher so it's less efficient. It's a sort of inefficient efficiency.

[Wolf1877]

I've measured various metrics over the years and the book percentage is shrinking, so the market is getting more 'efficient'. But the volatility is getting higher so it's less efficient. It's a sort of inefficient efficiency.

My take on that is that the "efficiency" is created by greater competition in arb-ing whilst the volatility is created by the markets being manipulated by traders and their bots.

As a newbie I've been very surprised at just how much volatility there is in the racing markets. The frequent seemingly artificial volatility makes the markets very difficult to read visually and trade manually for me anyway. The opportunity for anyone who can read/predict the likely outcomes from the volatility are great though. I do wonder how much attention I should start giving to traditional racing fundamentals (i.e. developing analysis methods of pre race form/handicaps etc) to gain a better idea of fair price for a horse so that I can profit when volatility pushes prices to unrealistic or unjustified levels.

[Euler]

You often see two equally weighted horses in a handicap with the same rating, where there is no difference between them in any respect but the prices vary widely, despite starting at the 'correct' price. Makes no sense.

[ShaunWhite]

You often see two equally weighted horses in a handicap with the same rating, where there is no difference between them in any respect but the prices vary widely, despite starting at the 'correct' price. Makes no sense.

The handicapping system isn't especially hard to fiddle, horses with the same weighting and rating are often of quite different ability.

[Derek27]

Two horses can have the same handicap rating, one could be out of form and due to draw his pension, the other could be a lightly raced sort full of potential and a stone better than his rating.

[Euler]

I realise both those points, but how can the price then move 20% in the last five minutes while the horses are merrily trotting to post without a care in the world. Probably had nearly a day to get the pricing right.

[weemac]

Because price 'efficiency' is reached in very large part via 'wisdom of the crowd', and the crowd can't/won't/doesn't want to act until the last few minutes. With only £70k matched 2 minutes pre-off today in one Musselburgh handicap, 'true' price discovery would be impossible many hours out. And smart or knowledgeable money would surely hold back in the hope of getting a better price in any case? True, they might get flushed out by early support, but why throw your money at it 12 hours out, only to destroy the price for yourself with only a few quid available to match?

[Derek27]

I've always struggled to understand how a horse can drift from 4-1 to 6-1, and back down to 4-1 in the space of five minutes. This is something that has been happening on-course, long before Betfair was born.

With Betfair though, and cold traders placing bets purely based on where the market will move and without caring about the true chances of the horse winning, I would imagine when a horse drifts people are just jumping on the bandwagon until a big-time punter sees an outstanding opportunity, backs it for a few grand, and the trend reverses.

[ajdal]

I've always struggled to understand how a horse can drift from 4-1 to 6-1, and back down to 4-1 in the space of five minutes. This is something that has been happening on-course, long before Betfair was born.

With Betfair though, and cold traders placing bets purely based on where the market will move and without caring about the true chances of the horse winning, I would imagine when a horse drifts people are just jumping on the bandwagon until a big-time punter sees an outstanding opportunity, backs it for a few grand, and the trend reverses.

Once you appreciate the scale of resources some traders have at their disposal and that (apart from true gambles) the aim is to put smaller traders in a position where they cash out in fear of the escalating loses then it all makes sense.

Betfair is not driven by the same engine that drove bookmaker prices in the past when the book was driven primarily by lay balancing.

[spreadbetting]

I've always struggled to understand how a horse can drift from 4-1 to 6-1, and back down to 4-1 in the space of five minutes. This is something that has been happening on-course, long before Betfair was born.

You can't expect a market 5 minutes out, with maybe only £50K matched, to be as 'efficient' as a market at the off with possibly £1M matched. The trading span of a horse race is very short and even back in the old days the action generally only takes place after the horses have entered the paddock. Money will never enter the market as an ordered stream as not everyone is privy to the same information or even approaching the market with the same angle. If you check out the chart of the day and fat fingers threads you should be able to spot patterns as to how markets react to the volumes passing thru them.

[Euler]

Hmm

Voix Des Tiep_12504165_14_25_42.png

[ruthlessimon]

Not quite as clean as that one! but here's another similarish fav from today:

[Euler]

If you look at my chart it lost or gained, depending on your viewpoint 17% in two directions. Which obviously can't be efficient.

[ShaunWhite]

Surely the endpoint is the most efficient after the most 'votes' have been polled. No logical reason for any other conclusion.

But aren't these just a case of it being relatively cheap to make the price drift when the vol is low and there's little real money to resist it and then backing it back in when there's more money at each corresponding price point you layed at. (+1 obv). Before the stablising effect of significant real money it seems relatively easy to move a price in chucks and have the market follow rather than it being immediately brought back to where it was.

I don't think im seeing anything unexpected or inexplicable in these apart from early manipulation by someone who's a good judge of the likely sp. As always, the tricky part now is to converting hindsight into foresight,

[ajdal]

If you get the nod that the one paced, abundant stamina 12/1 shot that has been ridden mid-division in all his races recently is going to be ridden aggressively from the off in this race and will almost certainly still be thereabout with at least 3 fences left (bar a fall).. what kind of adjustment would you make (if any) to the price?... and at what stage pre-race would you start to attack the price ??... in fact, if few were privy to the knowledge, maybe you might even consider to push the price out first when it's cheaper ??

There really are a myriad of reasons that could alter the apparent chance of a horse even in the last few minutes...