nep-spo New Economics Papers
on Sports and Economics
Issue of 2017‒08‒20
one paper chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. What is the effect of insider trading on price efficiency? Evidence from a betting exchange By Paolo Bizzozero; Raphael Flepp; Egon Franck

  1. By: Paolo Bizzozero (Department of Business Administration, University of Zurich); Raphael Flepp (Department of Business Administration, University of Zurich); Egon Franck (Department of Business Administration, University of Zurich)
    Abstract: We present evidence that insider trading substantially contributes to the price discovery process after important news events and thus helps to create effcient markets. Live betting offers a unique opportunity to isolate and measure the activity of traders with earlier access to information (insiders). We perform an event study using detailed, point-by-point data from 141 men’s singles matches at two major professional tennis tournaments. The results show that betting prices start updating long before the general public receives the new information, indicating the existence of insider traders. Most importantly, the cumulative abnormal return during the first few seconds of insider trading following an important event is more than 60% of the full price reaction observed once the public receives the new information, meaning that insider trading has a large impact on price discovery. We also show that a simple trading strategy based on inside information can generate significant returns.
    Keywords: Market effciency, insider trading, event study, tennis betting
    JEL: G14 L83
    Date: 2017–08

This nep-spo issue is ©2017 by João Carlos Correia Leitão. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.