ABSTRACT
We test for the existence of Favourite-Longshot Bias (FLB) in tennis betting exchanges. Despite these being order-driven markets, with no direct participation from bookmakers, we have found very similar results to those obtained by Lahvička (2014) for bookmakers’ betting markets: the bias is stronger in matches between lower-ranked players, in later round matches and in high profile tournaments. This suggests that bookmakers’ adjustments to respond to informed betting are not the main driver of FLB. The varying magnitude of the bias across different types of event in the main market also weakens arguments linking FLB to gamblers’ risk preferences, and suggests the need to consider the microstructure features of the market together with the cognitive biases highlighted in the behavioural finance literature.
Acknowledgements
The authors thank Betfair for their help and support with the data.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 The role of bookmakers in setting odds has also been documented by Kock and Shing (Citation2008) and Rossi (Citation2011).
2 By major events, we mean the four Grand Slam (GS) events and the ATP and WTA final tournaments.
3 The result of the variable needs to be positive to indicate the presence of FLB in the main market, and negative to indicate it in the alternative market.