Friday, 23 November 2018


Some of you may have caught a discussion on Twitter yesterday regarding the use of statistics in betting, specifically in football and horse racing. 

Because Twitter's character limit can be a little constraining, here's a summary, though you can read the full conversation here.

The basic claim of A Lucky A  Day was that because soft books "seem to" use early prices as loss leaders, betting on horses pre-race "can be profitable for someone in their living room". I begged to disagree.

A Lucky wrote that:
Opening horse racing markets are generally less efficient than opening soccer markets. 
While pointing out that one can't compare a ternary event with a horse race that may have over thirty possible outcomes, I think this is generally true, the reason being that privately held inside information is what makes a market inefficient, and as I have written before, horse racing is a sport which will always have insiders. It's far easier to make sure a horse loses than a football team.

Large price moves alone don't mean a market is inefficient. In fact it could well mean the opposite, and that the market is simply reacting quickly to smart money coming in to the event.

A Lucky continued:
The more inefficient a market is the more opportunity there is to profit from knowledge. 
This statement is essentially correct. An inefficient market is one "in which an asset's market price doesn't always accurately reflect its true value. In an inefficient market, some investors can make excess returns while others can lose more than expected". 

The problem is that the knowledge required to make sure you are on the "making excess returns" side of the coin, isn't available to the living room punter. It's the insider who has this edge. The armchair punter is essentially guessing. He may win sometimes, he may lose sometimes, but ultimately in the long-run he will lose out to commission / transactions costs. 

Lucky seems to think that an armchair punter can use public data to gain an edge:
Everything I've read says in an inefficient market all public information is not factored in, so the edge can come from interpretation of public information, In an efficient market the edge can only come from private information.
The source of his confusion perhaps lay in the false assumption that an inefficient market "was the opposite of Eugene Fama's definition of an efficient market. The papers that I have read, that test betting markets for inefficiency, do it by trying to beat that market using public information".

I'd love to see those studies! Of course all public information is factored in to markets, wherever they lie on the scale of 'efficiency'. (An inefficient market is not the 'opposite' of an efficient market any more than red is the opposite of violet in the visible spectrum). 

The argument that "we don't all interpret data in the same way" doesn't mean that the data isn't factored in. 

Nor does the suggestion of Daniel Górka make too much sense, that:
because [the] majority of gamblers don't know at first place how to compile their own win probabilities and then how to to use/incorporate those information into their pricing process
In which case, these would hardly be people in a position to gain an edge in any market.

The truth is you're not going to gain a edge in horse-racing markets by looking at data available to the public, and which has been pored over by the thousands of people who are looking for a bet. 

To imagine that you have a unique ability to spot something thousands of others have missed is naive at best, and frankly more than a little arrogant.

If someone does have a unique ability to read markets and thus has an edge generating a long-term profit, some thoughts.

One, they would not be writing trading manuals, producing videos or offering trading courses to give away their edge.

Two, someone else will find the same edge one day, and it will disappear.

Three, with a skill like this, they should move into the far more liquid and lucrative world of financial  transactions.

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