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APPLICATIONS OF AN SPRT-LIKE TEST IN PARI-MUTUEL WAGERING

Lisa Porth, Earl Rosenbloom

Abstract


Pari-mutuel wagering functions as a very simple financial market, and has therefore been important in studying market efficiency.  In this study, an SPRT-like test reveals that probabilities from the win pool corrected for the favourite longshot bias using Asch and Quandt’s regression equation can be used to exploit the exacta pool, and probabilities obtained from the exacta pool can be used to exploit the win pool.  These finding differ from previously published studies that maintain that the win pool is largely efficient.  Further, these findings mirror statistical arbitrage strategies utilized by hedge funds, where pricing inefficiencies are exploited between related assets.

Keywords


SPRT-like Test, Pari-Mutuel Wagering, Statistical Arbitrage

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References


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DOI: http://dx.doi.org/10.5750/jgbe.v4i2.556

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