Is Racetrack Betting on Exactas Efficient?

Abstract

A test of the efficiency of an exotic racetrack betting market--the exacta--is examined. Although a prior study found that the exacta failed the efficiency test, that result is sho wn here to depend on a biased estimation procedure. Similarly, this bia sed estimation procedure can vitiate a conclusion that exacta markets ar e attracting "smart money" (holders of insider information) in an attempt to avoid revealing their information to the betting public. Copyright 1993 by The London School of Economics and Political Science.