Introduction

So far, our analysis has concentrated on weak form information efficiency in betting markets. In this chapter the focus turns to semi-strong and strong form efficiency. Semi-strong form information efficiency is the notion that current prices incorporate all publicly available information. In consequence, in a financial market which is semi-strong efficient it should not be possible to earn above-average or abnormal returns on the basis of information which is publicly available. In a market which is strong form efficient it should not be possible to do so even if given all information, including private information. Indeed, any such strategy should on average yield the same return, unless there are differential costs or risks associated with these strategies.

The existence of semi-strong efficiency in betting markets would imply, therefore, that the expected returns to any bet, or type of bet, placed about identical outcomes on the basis of publicly available information, should be identical (subject to identical costs and risks). The same applies with respect to strong efficiency when assessed in respect of all information. Otherwise bettors could use this information to increase their expected returns. In a semi-strong efficient market, for example, the expected return to a bet placed on a horse on the parimutuel (or ‘Tote’) should be identical to that available with bookmakers, should both options be available. Similarly, it should not be possible to identify patterns in the returns which can be used to yield above-average or abnormal returns.