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Just How Serious is Insider Trading? An evaluation using thoroughbred wagering markets

Les Coleman

Abstract


This paper quantifies the extent and changes in insider trading in the Melbourne racetrack betting market using a unique, long term dataset. Wagering markets share many of the characteristics of other financial markets, and are simple, with good data and a designated endpoint. Thus they are an excellent natural laboratory to study what is probably happening in qualitatively similar conventional markets. Results of this paper provide statistically significant support for hypotheses supporting the existence and increase in level of insider trading, and suggest that around two percent of betting is by insiders.

Research for this paper was supported by a grant from the Economics and Commerce faculty at the University of Melbourne, and was conducted very efficiently by Andrew Saunderson. Dr Ian O’Connor provided excellent assistance with analysis of data. I am grateful for valuable comments from the Journal’s editor and an anonymous reviewer, and from delegates to the 2004 Australasian Finance and Banking Conference where an early version of this paper was presented. All remaining errors and omissions are mine.


Keywords


insider trading, strong market efficiency, wagering markets

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References


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DOI: https://doi.org/10.5750/jgbe.v2i3.538

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