Parimutuel Betting Markets: Racetracks and Lotteries Revisited

This paper discusses the state of the art in research in racetrack and lottery investment markets. Market efficiency and the pricing of various wagers is studied along with new developments since the Thaler and Ziemba (1988) review. The weak form inefficient market approach using stochastic programming optimization models changed racetrack betting from handicapping to a financial market allowing professional syndicates to operate as successful hedge funds. The topics discussed include the role of arbitrage and risk arbitrage, syndicates, betting exchange rebates, behavioral biases, portfolio insurance and fundamental and mispricing information in racetrack and lottery markets as well as other sports betting markets. I co-authored the Beat the Racetrack books which provided a weak form winning system for place and show bets and analyzed racing as a financial market and Efficiency of Racetrack Betting Markets, the "bible" for Hong Kong racing betting syndicates. These made me known to practitioners and consultants and I have consulted for several racing syndicates