Efficiency of Racing, Sports, and Lottery Betting Markets

Abstract This is a survey of efficiency in racing, sports, and lottery markets. The win market is efficient but exhibits a favorite-longshot bias. The place and show markets, which involve more possible finishes, allow inefficiencies by using the win probabilities. These biases are discussed for U.S. and Hong Kong markets. The Kelly capital growth criterion is useful to implement a model to exploit these inefficiencies. Exotic markets involve even more complex sets of bets. Finally, possible inefficiencies in cross-track betting are discussed. Football and basketball betting markets are largely efficient. Lotteries provide interesting markets with one way to potentially exploit them being the use of unpopular numbers.

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