How efficient is the European football betting market? Evidence from arbitrage and trading strategies

Abstract

This paper assesses the international effi ciency of the European football betting market by examining the forecastability of match outcomes on the basis of the information contained in different sets of online and fi xed odds quoted by six major bookmakers. The paper also investigates the profi tability of strategies based on: combined betting, simple heuristic rules, regression models and prediction encompassing. The empirical results show that combined betting across different bookmakers can lead to limited but highly profi table arbitrage opportunities. Simple trading rules and betting strategies based on forecast encompassing are found capable of also producing signifi cant positive returns. Despite the deregulation, globalization and increased competition in the betting industry over recent years, the predictabilities and profi ts reported in this paper are not fully consistent with weak-form market effi ciency.

Inter‐market Arbitrage in Betting

“…This is one arbitrage opportunity per 125 matches, or 0.8%. The frequency of intra-market arbitrage opportunities in our sample is higher than the value of 0.5% found by Vlastakis et al (2009) in their sample of 12,841 soccer matches covering 26 different countries. One reason of the higher percentage of arbitrage opportunities in our sample is that we compare the odds of ten different bookmakers, whereas Vlastakis et al (2009) include only five different bookmakers.…”

“…By contrast, in the bookmaker market the payout ratio on a winning bet is tied to the initially taken odds and does not depend on subsequent price changes. Empirical studies that test the arbitrage condition in bookmaker betting discover some opportunities for arbitrage when the number of bookmakers analysed is sufficiently large (see Pope and Peel 1989;Dixon and Pope 2004;Vlastakis et al 2009). Alongside the traditional market settings, exchange betting has emerged in recent years as a novel market mechanism.…”

New entry, strategic diversity and efficiency in soccer betting markets: the creation and suppression of arbitrage opportunities

“…Certainly, the widening of the set, and the greater diversity, of bookmaker activity under consideration here might reasonably be expected to generate a significant increase in arbitrage opportunities. This observation applies equally when comparing our results with those of Vlastakis et al (2009) who investigated arbitrage opportunities among a population of five PTBs and one BBB. Their results revealed sixty three arbitrage opportunities across the aggregate group of six, which reduced to just ten within the group of five PTBs, though they caution that these results may underestimate actual arbitrage opportunities as their analysis considered only closing odds, which would deny identification of opportunities associated with earlier available price menus.…”

“…The optimization process presented in (4) to (9) reveals the existence of 545 arbitrage opportunities across the 2,132 (that is, in 25.6% of) matches in our sample. Notably, this figure is significantly higher than the results of earlier studies (Franck et al (2013), Vlastakis et al (2009)) a fact which may be explained by a combination of the methodology employed to identify opportunities in this paper and the range of bookmakers under scrutiny. The method employed here, as described above, offers a comprehensive and reliable identification of opportunities by embodying time precision regarding the co-availability of odds and by ensuring identification of opportunities throughout the duration of the market, rather than, as with both Franck et al The distribution of arbitrage opportunities across the different leagues is shown in Table 3 and the frequency with which each bookmaker's odds feature in the optimized portfolio are shown in Table 4.…”

“…Pope and Peel (1989) showed that arbitrage opportunities were occasionally available across U.K. bookmakers. However, later research suggested that the degree of coordination between bookmakers has increased (Dixon and Pope, 2004;Deschamps and Gergaud, 2007;Luckner and Weinhardt, 2008;Deschamps, 2008;Vlastakis, Dotsis and Markellos, 2009;Spann and Skiera, 2009;Franck, Verbeek and Nüesch, 2010). This may have arisen due to the emergence of professional arbitrageurs (Dixon and Pope, 2004).…”