This paper examines the efficiency of the two major Australian football betting markets: the Australian Rugby League (ARL) FootyTAB market and the Australian Football League (AFL) Footywin market. Probit and ordered probit models are tailored to the unique structures of the markets. This circumvents some potential econometric problems, and also allows us to test betting strategies in which a bet is placed only when there is a high ex-ante probability of success. Our probit models are successful in predicting game outcomes in both the ARL and AFL. While several of our betting strategies generate significant profits, both insample and out-of-sample, we offer a number of reasons why we are cautious about interpreting these results as conclusive evidence of market inefficiency.
This paper contributes to the empirical literature which documents the existence of a positive association between unexpected earnings and/or dividend announcements and abnormal returns to equity.
The paper addresses some of the methodological limitations evident in the literature. In particular, one methodological difficulty encountered by previous studies is that since earnings and dividend announcements are usually made contemporaneously it is difficult to assess the marginal effect of either announcement on security returns. This problem is dealt with by constructing portfolios of securities which are randomized with respect to unexpected earnings (dividends), but which are systematically ranked on unexpected dividends (earnings).
The results indicate that unexpected earnings announcements have a significant marginal impact on abnormal returns. In addition, there is evidence of an impact of unexpected dividends on returns, but it is weaker than unexpected earnings.
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