Benedikt Schmal, Senior Researcher at the Economic Theory Group at the Ilmenau University of Technology, has published the paper “Pricing in Response to New Information: The Case of Betting Markets” – a joint work with Kai Fischer, PhD Candidate at the Duesseldorf Institute for Competition Economics at Heinrich Heine University. The publication appears in the journal “Economic Inquiry”. Fischer and Schmal empirically investigate how markets incorporate new information into existing pricing schemes. They do this using the example of prediction markets. In a quasi-natural experiment, they investigate how the announcement of absent elite soccer players influences the betting odds on the outcomes of the affected matches. Fischer and Schmal analyze the first three statistical moments of 117,174 odds from 32 bookmakers in Europe. They are able to identify initial inertia in response to absence announcements followed by a lagged reaction that cannot be justified with learning. This is new evidence of market inefficiency that has implications for financial markets.
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