Exploring decision makers use of price information in an efficient speculative market

Johnnie Johnson, Owen Jones, Leilei Tang

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

We explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements. The horse race betting market is an ideal environment to explore these issues. A conditional logit model is constructed to determine winning probabilities based on bookmakers' closing prices and the time-indexed movement of prices to the market close. We incorporate a technique for extracting predictors from price (odds) curves using orthogonal polynomials. The results indicate that closing prices do not fully incorporate market price information, particularly information that is less readily discernable by market participants.
Original languageEnglish
Pages (from-to)897-908
Number of pages11
JournalManagement Science
Volume52
Issue number6
DOIs
Publication statusPublished - 6 Jun 2006

Keywords

  • decision makers
  • price information
  • speculative market

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