Introduction

In this chapter we seek evidence to suggest that market signals in fixed-odds betting markets can be used to identify profitable spread betting opportunities. It is the belief that inside information is still largely exclusive to the fixed-odds markets that drives this work; potential spread bettors observe the changes in the fixed-odds prices offered by the fixed-odds bookmakers, use these changes to calculate the expected spread points for each horse and then take advantage of discrepancies between their estimates of the points and the spread being offered by the spread betting firm to place promising bets. For this endeavour to be successful, there are two main requirements of the markets in question. The first is that the evolution of the fixed-odds prices must be such that the probability estimates based upon the odds tend to improve. There are several previous studies that suggest that this is the case – see, for example, Crafts (1985) for British racing, Asch, Malkiel and Quandt (1982) for US racing and Schnytzer and Shilony (1995) for Australian racing. The second requirement is that the spread betting firms are slow to react, or do not react at all, to the fixed-odds price changes.

For each spread betting market the spread firm offers a spread (a, b) such that a < b. Once the market is complete the final value of the market, c, will be known.