Hidden power of trading activity: the FLB in tennis betting exchanges

This paper examines the impact of trading activity on the Favourite-Longshot Bias (FLB) in tennis Betting Exchanges, using direct measures such as betting volume, average bet and standard deviation of the odds. According to predictions based on Disagreement Models, odds mispricing is positively associated with trading volume but negatively associated with the presence of institutional bettors. The FLB is also positively related to the degree of uncertainty in the market. The existence of two simultaneous markets (a “main” and an “alternative” market) in this specific sports-betting environment has enabled us to observe that the relative amount of attention given to the favourite versus that given to the long shot is positively associated with the FLB. Finally, information is more rapidly incorporated into the odds in the market that receives more attention from bettors, an effect that is intensified by the arbitrage and hedging that occurs between the two markets.