Markets respond efficiently to news, according to research by Karen Croxson and James Reade, published in the March 2014 issue of the Economic Journal.
Their study examines how the price of different bets on the Betfair exchange varied as goals were scored during more than 1,200 professional football matches from a wide range of competitions – domestic and international, club and national team matches.
In particular, they look at how betting prices changed in response to goals scored just before half time. This strategy makes it possible to separate the market”s response to major news – a goal – from its reaction to the continual flow of minor game-time news. Relevant news hardly ever emerges during half time.
The researchers find that prices update swiftly and fully when a goal is scored during the five minutes before half time. But although trading is active during the break, prices barely move at all. This shows that the market traders instantly absorb the news of a goal. After the second half begins, prices start to drift again.
These results suggest an efficient response both to news and to the absence of news – in sports betting markets at least.
James Reade comments:
”While the context of our research is sports betting markets, there is little reason to believe that our findings don”t apply more widely – certainly within the context of financial markets, which betting markets mimic.”
”Information and Efficiency: Goal Arrival in Soccer Betting” by Karen Croxson and James Reade is published in the March 2014 issue of the Economic Journal. Karen Croxson is at Oxford University. James Reade is at Reading University.