The role of speculative trade in market efficiency: Evidence from a betting exchange

Brown, Alasdair and Yang, Fuyu (2017) The role of speculative trade in market efficiency: Evidence from a betting exchange. Review of Finance, 21 (2). pp. 583-603. ISSN 1573-692X

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Abstract

Does speculative trade reduce mispricing and help create efficient markets or does it drive prices further from fundamentals? We analyze betting exchange trading on 9,562 UK horse races in 2013 and 2014 to find out. Crucially, as each race is run, the fundamental value of bets is unambiguously revealed. We find that the volume of trade is predictive of fundamentals, suggesting that speculative trade is on average conducive to market efficiency. However, much of this effect is concentrated in the in-running period during races when, even without trade, asset fundamentals would be revealed seconds later.

Item Type: Article
Additional Information: This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The version of record is available online at: dx.doi.org/10.1093/rof/rfw027
Uncontrolled Keywords: market efficiency,trading volume,asset fundamentals,betting markets
Faculty \ School: Faculty of Social Sciences > School of Economics
Depositing User: Pure Connector
Date Deposited: 10 May 2016 13:00
Last Modified: 17 Mar 2020 21:52
URI: https://ueaeprints.uea.ac.uk/id/eprint/58626
DOI: 10.1093/rof/rfw027

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