The efficiency of the in-play betting markets for the 2010 FIFA World Cup

MacNevin, Ben (2010). The efficiency of the in-play betting markets for the 2010 FIFA World Cup Honours Thesis, UQ Business School, The University of Queensland.

       
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Author MacNevin, Ben
Thesis Title The efficiency of the in-play betting markets for the 2010 FIFA World Cup
School, Centre or Institute UQ Business School
Institution The University of Queensland
Publication date 2010-10-28
Thesis type Honours Thesis
Supervisor Vanitha Ragunathan
Stephen Gray
Total pages 121
Language eng
Subjects 1502 Banking, Finance and Investment
Abstract/Summary This thesis comprehensively examines the efficiency of the in-play betting markets for the 2010 FIFA World Cup. In-play betting markets provide an ideal setting to test efficiency. They are similar to the structure of traditional financial markets but are relatively free of confounding influences. I analyse the movement of the market odds by the second around each match event to describe how investors react to varying news events. I also develop non-parametric models that incorporate all available information to determine if the reactions are appropriate. Preliminary evidence suggests that in-play markets are highly efficient. Goals are the most significant event of a match, where the initial reaction of the market odds is very swift. However, there are anomalies identified in the betting markets. Specifically, mispricing is identified in the lay markets for loss contracts after the scoring of a goal. The mispricing is exploited for significant profits with simple trading strategies. This mispricing is explained with prospect theory. After the scoring of a goal, investors irrationally prefer backing the team to win, instead of laying the team to lose, when both contracts are essentially the same. This thesis contributes to the literature by demonstrating that models incorporating all match events more appropriately describe market returns than models that only incorporate significant events. I also examine the extent that the market considers out-of-play information when reacting to events. Investors seem to over-emphasise the relevance of outside information during a game, which causes deviations from the fundamental value of asset prices. These findings have important implications for future research. Sophisticated models are required to adequately describe market returns, though further analysis is required to determine which match events constitute the most explanatory power.

 
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Created: Mon, 16 Jul 2012, 12:31:30 EST by Karen Morgan on behalf of UQ Business School