Efficiency of Horse Racing Markets on Betfair

[Derek27]

Hi Derek

No, I didn't, but I don't think it makes a difference.

I think I can see where you might be coming from.

Let's say we had a million 5 horse races and assigned each horse odds of 5.0, from horses that should be odds on to ones that should be starting at 1000. By laying all of the horses at 5.0, then you would more or less break even (if you didn't have commission to pay). The overall picture would be one of extreme efficiency, but that would be misleading.

It makes all the differences Jeff. If you didn't balance the overrounds you're probably comparing a 370% overround to a 100% overround - a comparison cannot be make.

As I explained in the coin-tossing example, looking at backing/laying all or a specific group, whether it's under 10s, over 10s, odd number saddle cloths, even number saddle cloths, horses beginning with the letter 'A', etc. you'll break even with a 100% overround, so the test doesn't give any indication as to market efficiency.

The true test of how efficient BSP is, is can a gambler with good knowledge of horse racing make a profit betting at BSP or prices at the off. The obvious answer is yes, and this proves that BSP is not efficient. If they were it would not be possible for a gambler to make much more than a few percent profit.

[Iron]

As I explained in the coin-tossing example, looking at backing/laying all or a specific group, whether it's under 10s, over 10s, odd number saddle cloths, even number saddle cloths, horses beginning with the letter 'A', etc. you'll break even with a 100% overround, so the test doesn't give any indication as to market efficiency.

It's an interesting point.

I take your point that, providing the odds add up to 100%, you will more or less break even long term if we discount commission. I was initially sceptical, but I've run a simulation on a spreadsheet, and it checks out, as the errors in one direction cancel out the errors in the other.

However, it's harder to explain away the fact that, for example, of the 126 horses that set off with BSPs of 3.0 in 2017, 34% won. Or the fact that, of the 241 horses that set off with BSPs of 4.0, 26% won. Does that kind of accuracy not suggest that, at worst, the BSP is there or thereabouts, over a large sample of horses?

The true test of how efficient BSP is, is can a gambler with good knowledge of horse racing make a profit betting at BSP or prices at the off. The obvious answer is yes, and this proves that BSP is not efficient.

It doesn't - it proves, at most, that the BSP can be inefficient for individual horses (which nobody disputes).

As an aside, I doubt that many people can beat the BSP long-term, but I could be wrong.

Jeff

[LinusP]

As I explained in the coin-tossing example, looking at backing/laying all or a specific group, whether it's under 10s, over 10s, odd number saddle cloths, even number saddle cloths, horses beginning with the letter 'A', etc. you'll break even with a 100% overround, so the test doesn't give any indication as to market efficiency.

It's an interesting point.

I take your point that, providing the odds add up to 100%, you will more or less break even long term if we discount commission. I was initially sceptical, but I've run a simulation on a spreadsheet, and it checks out, as the errors in one direction cancel out the errors in the other.

However, it's harder to explain away the fact that, for example, of the 126 horses that set off with BSPs of 3.0 in 2017, 34% won. Or the fact that, of the 241 horses that set off with BSPs of 4.0, 26% won. Does that kind of accuracy not suggest that, at worst, the BSP is there or thereabouts, over a large sample of horses?

The true test of how efficient BSP is, is can a gambler with good knowledge of horse racing make a profit betting at BSP or prices at the off. The obvious answer is yes, and this proves that BSP is not efficient.

It doesn't - it proves, at most, that the BSP can be inefficient for individual horses (which nobody disputes).

As an aside, I doubt that many people can beat the BSP long-term, but I could be wrong.

Jeff

You would be surprised Jeff.

[Iron]

As an experiment, I sorted all horses in the 2017 horse racing data file by ascending BSP, and then deleted duplicates by the 'race date and time' column, meaning I was left with just one horse per race - the horse with the lowest BSP in that race.

That prevents the over-round issue that Derek was referring to distorting the results.

The sample size I was left with was 13,000. Average odds 3.41.

The commission-free lay ROI over the sample was 0.22%, suggesting very high market efficiency at BSP over a large sample.

Jeff

[Iron]

Quite possibly.

The more I learn about the markets, the more I appreciate how little I know.

Jeff

You would be surprised Jeff.

[spreadbetting]

As an experiment, I sorted all horses in the 2017 horse racing data file by ascending BSP, and then deleted duplicates by the 'race date and time' column, meaning I was left with just one horse per race - the horse with the lowest BSP in that race.

That prevents the over-round issue that Derek was referring to distorting the results.

The sample size I was left with was 13,000. Average odds 3.41.

The commission-free lay ROI over the sample was 0.22%, suggesting very high market efficiency at BSP over a large sample.

Jeff

But what was the overround on those markets, Jeff, you'd really need to adjust the BSP to take into account any over/underround otherwise you may be simply getting your 0.22% ROI from the fact there are more layers than backers in the BSP markets. Just did a quick average BSP overround and it came out at 99.875% from just under 122,000 markets.

[Iron]

Hi SB

I also don't know how BSP is calculated - I'm not sure anyone outside of Betfair does - but my understanding is that it approximates to the average price of the money traded just before the off, so surely is a good guide to how efficient the market is at that point? I'm not saying you're wrong, btw - I keep an open mind.

Jeff

But what was the overround on those markets, Jeff, you'd really need to adjust the BSP to take into account any over/underround otherwise you may be simply getting your 0.22% ROI from the fact there are more layers than backers in the BSP markets.

[spreadbetting]

The BSP isn't set to return to 100% is all I was pointing out, Jeff, can be under or overround. So your ROI could just as easily be coming from the fact those markets were overbroke, unless you tweak your figures to that theoretical 100% they'd be flawed.

[ShaunWhite]

Only 536 people have actually been high enough above the earth to see it as a globe, perhaps, unless that is a conspiracy. But 7bn people live on it, I'm plumping for flat.

i dont believe for a minute your an idiot flat earther, so i can only assume this is part of your contrarian approach to trading (going against the crowd).

It's been a while since I've been at 40,000 feet, but I thought you could just about see the curvature of the earth from that height ?

i think you need a lot higher 15 to 20 miles

You can see it at sea level.

When a ship approaches you see its mast before the superstructure, or if you're approaching land you see the mountain tops first. Known since the first canoe ventured too far offshore, certainly by all the circumnavigators.

You're all only thinking of seeing the curve in one plane.

[Derek27]

Hi SB

I also don't know how BSP is calculated - I'm not sure anyone outside of Betfair does - but my understanding is that it approximates to the average price of the money traded just before the off, so surely is a good guide to how efficient the market is at that point? I'm not saying you're wrong, btw - I keep an open mind.

Jeff

But what was the overround on those markets, Jeff, you'd really need to adjust the BSP to take into account any over/underround otherwise you may be simply getting your 0.22% ROI from the fact there are more layers than backers in the BSP markets.

It is quite complicated but Betfair did explain how it works at the time.

A provisional price is calculated from SP bets. If it's below exchange prices at the off, exchange back bets get matched with SP money and that raises the SP. Conversely, if it's above current prices unmatched lay orders get matched to reduce SP.

[to75ne]

It's been a while since I've been at 40,000 feet, but I thought you could just about see the curvature of the earth from that height ?

i think you need a lot higher 15 to 20 miles

You can see it at sea level.

When a ship approaches you see its mast before the superstructure, or if you're approaching land you see the mountain tops first. Known since the first canoe ventured too far offshore, certainly by all the circumnavigators.

You're all only thinking of seeing the curve in one plane.

i have no doubt that is true but (and i live on the coast and have a boat), if you did know not the earth was a sphere, it does not strike you as being a sphere, it does appear to be an edge, and before people (sailors in particular ) knew any better, they believed there was an edge and get too close , over you go.

[Derek27]

However, it's harder to explain away the fact that, for example, of the 126 horses that set off with BSPs of 3.0 in 2017, 34% won. Or the fact that, of the 241 horses that set off with BSPs of 4.0, 26% won. Does that kind of accuracy not suggest that, at worst, the BSP is there or thereabouts, over a large sample of horses?

As an aside, I doubt that many people can beat the BSP long-term, but I could be wrong.

Jeff

It proves the average is close as one would expect. Lets face it,you're not going to get 3.0s under performing and 4.0s over performing. The efficiency of markets should be measured by how much it deviates fron the mean.

I know Timeform have made decent profits at bookie prices so they must do better at BSP.

[Derek27]

i have no doubt that is true but (and i live on the coast and have a boat)

I should have guessed you're a sailer from your username.

[Derek27]

I also don't know how BSP is calculated -

Here you are.

https://promo.betfair.com/betfairsp/FAQ ... kings.html

[Derek27]

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 ?