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The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs. Strathprints provides access to thousands of Open Access research papers by University of Strathclyde researchers, including those from the School of Psychological Sciences & Health - but also papers by researchers based within the Faculties of Science, Engineering, Humanities & Social Sciences, and from the Strathclyde Business School.

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Exploring decision makers use of price information in an efficient speculative market

Johnson, Johnnie and Jones, Owen and Tang, Leilei (2006) Exploring decision makers use of price information in an efficient speculative market. Management Science, 52 (6). pp. 897-908. ISSN 0025-1909

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Abstract

We explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements. The horse race betting market is an ideal environment to explore these issues. A conditional logit model is constructed to determine winning probabilities based on bookmakers' closing prices and the time-indexed movement of prices to the market close. We incorporate a technique for extracting predictors from price (odds) curves using orthogonal polynomials. The results indicate that closing prices do not fully incorporate market price information, particularly information that is less readily discernable by market participants.