Inside Information in a Betting Market

Inside information concerning a risky asset is presumed to be beneficial to its holder. Measurement of the impact and benefit of inside information is difficult because its use for financial gain is often illegal. Ideally one would like to investigate and compare two mutually isolated groups, one with and the other without access to inside information. The Australian horse-betting market offers such an opportunity. It is found that even exposure to 'second hand' inside information effects a change in behavior, a rise in payoffs, and adds power and significance to the prediction of race results. Copyright 1995 by Royal Economic Society.