In this paper, we examine the role played by the holders of privileged information (insiders) in stimulating trading volume which adds explanatory power to a price-based model of returns in a market where the actions of insiders can be isolated – a pari-mutuel betting market. We conduct conditional logit analyses based on data relating to 19,164 horses running in 2078 races (49 racetracks) staged across the UK between 1 June and 31 August 1996. These analyses indicate that prices generally fail to incorporate fully information contained in trading volumes. However, the betting public fully discounts volume information in markets most commonly viewed as attracting bets from insiders. Isolation of the actual degree of insider activity sheds light on the variation in volume effects.
Bruce, A., Johnson, J., & Tang, L. (2011). The explanatory power of trading volume and insider activity in a pari-mutuel betting market. European Journal of Finance, 17(3), 197-216. https://doi.org/10.1080/1351847X.2010.481468