How Efficient Are Information Markets? Evidence from an Online Exchange∗
نویسنده
چکیده
Do observed inefficiencies in betting markets generalize to real financial markets? Evidence from an online exchange with characteristics of both types of markets suggests they do not. This study replicates some known anomalies in sports wagering markets on the online exchange, such as overreaction to news. The observed inefficiencies do not generalize to other wagering markets, such as financial markets, even though both markets have similar liquidity, volume and contractual structure. These results suggest researchers should proceed with caution before drawing analogies between sports wagering markets and real financial markets. They also show that financial markets can be efficient despite numerous obstacles to arbitrage. ∗I am grateful to the National Science Foundation and Harvard University for their financial support. David Laibson, John Campbell, Jeremy Stein, Andrei Shleifer, Robert Hahn, Philip Tetlock, Barbara Mellers, Terry Murray and seminar participants at Harvard University have provided valuable comments contributing to this article. Nathan Tefft assisted in the programming of the data extraction algorithm. All mistakes in this draft are my own. †Department of Economics, Harvard University, Cambridge, MA 02138; e-mail: [email protected].
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