Is Betfair no longer the arbiter of true value?
Big headline, what does it mean?
OK, for years the exchange mechanism has provided a very useful pricing mechanism. An careful aggregation of demand between people competing on a level playing field and it has provided a beautiful insight into the way free markets can work to mysteriously, accurately, price an event – in this case the prediction that something will win a sports event.
But we have been watching closely as the market appears to be decoupling from it’s long established core. You can speculate on why this is, but this is obviously an issue for Betfair. Not only is this supposed to be Betfair’s USP, but Betfair also charge for access to pricing information from the exchange, fairly large sums.
What do we mean by decoupling? Well there is evidence that true price isn’t being readily discounted to the market as much as it used to on Racing, possibly on others sports as well. On very short time scales unusual price movement is also on the increase. The strange thing about this is that it’s obvious that not all prices can be value.
In this example you see below you can see the price of this horse started at 3’s. At that level it had a 33% chance of a winning. Not much later it had drifted to 6’s, a mere 16% chance of winning. Then mysteriously it ended up going off at near 3’s again. The horse was fine and there was nothing unusual going on in the preliminaries. Both prices can not be right and both can not be value. The market was saying, despite not having any good reason to say so, it’s got a good chance of winning, no it hasn’t, yes it has. All in a short period of time, most of it was in the last 1/2 hour, the majority in the last ten minutes.
Years ago this never used to happen, then we would see it now and again but it’s become a much more common characteristic now and that’s a problem because anybody trying to bet on it has a wide margin of error now. Of course, on an exchange, for every downside there is a upside, but from a conventional punting perspective would you rather pay 110% and be assured of a price, or pay 105% plus a possible 16% or more! Hmm…. I’ll keep an eye on things.
