ABSTRACT
Introduction The purpose of this chapter is to shed light on the functioning of a market for state-contingent claims with inside traders. In contrast to US horse betting markets,1 in the UK market, betting on-course takes place with both a pari-mutuel and bookmakers, the latter offering bets at fixed prices. Further, off-course, it is possible to bet by amethod known as SP,wherebywinning bets are paid at the equilibrium closing prices in the bookmakers’ market on-course (known as Starting Prices). As in many other betting markets, a favorite-longshot bias is observed throughout the duration of the on-course market. A favorite-longshot bias implies that favorites are underpriced relative to longshots.
