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.
LanguageEnglish
Pages897-908
Number of pages11
JournalManagement Science
Volume52
Issue number6
DOIs
Publication statusPublished - 6 Jun 2006

Fingerprint

Decision maker
Closing price
Market price
Conditional logit model
Polynomials
Betting markets
Predictors

Keywords

  • decision makers
  • price information
  • speculative market

Cite this

@article{4760c46f62694ac9b3e23ffa21745e59,
title = "Exploring decision makers use of price information in an efficient speculative market",
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.",
keywords = "decision makers, price information, speculative market",
author = "Johnnie Johnson and Owen Jones and Leilei Tang",
year = "2006",
month = "6",
day = "6",
doi = "10.1287/mnsc.1060.0506",
language = "English",
volume = "52",
pages = "897--908",
journal = "Management Science",
issn = "0025-1909",
number = "6",

}

Exploring decision makers use of price information in an efficient speculative market. / Johnson, Johnnie; Jones, Owen; Tang, Leilei.

In: Management Science, Vol. 52, No. 6, 06.06.2006, p. 897-908.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Exploring decision makers use of price information in an efficient speculative market

AU - Johnson, Johnnie

AU - Jones, Owen

AU - Tang, Leilei

PY - 2006/6/6

Y1 - 2006/6/6

N2 - 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.

AB - 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.

KW - decision makers

KW - price information

KW - speculative market

UR - http://dx.doi.org/10.1287/mnsc.1060.0506

U2 - 10.1287/mnsc.1060.0506

DO - 10.1287/mnsc.1060.0506

M3 - Article

VL - 52

SP - 897

EP - 908

JO - Management Science

T2 - Management Science

JF - Management Science

SN - 0025-1909

IS - 6

ER -