With the discussion going on in some other themes about longshots, ratings etc, when considering what could be termed 'market efficiency' it has been a long-held belief by many that the bookmakers market is the best guide, but not necessarily always correct, for the real chances of each individual horse in any given race.

This is certainly true in a broad sense at the very least.

Over the last few years however with weak on-track markets that efficiency has come under strain, particularly with the bookies opening markets, albeit that by race-start time a degree of efficiency has been reached, more so in Sydney than in any other, often with over-rounds of under 110% with an average of around 115%.

While not attempting how to tell others to suck eggs, for those that might not know what an over-round is: well it is the total percentages of all the runners/participants/outcomes in any given event, e.g. in the current 2nd test match between Australia & South Africa at the close-of-play on day 3 the respective odds of the three possible outcomes are:

TAbcorp Sportsbet:
Australia: $1.55 (64.5%)
South Africa: $9.00 (11.1%)
Draw: $2.80 (35.7%)
Total Percentage/Over-round = 111.3%
(Brackets indicate odds converted to percentages)

Many would argue (including me) that in a three outcome event an over-round of 111.3% is not that efficient, and it ain't when considered to the odds offered by Betfair (a short while ago):

Betfair:
Australia: $1.63 (61.3%)
South Africa: $12.00 (8.3%)
Draw: $3.25 (30.7%)
Total Percentage/Over-round = 100.3%
(Brackets indicate odds converted to percentages)

Overall an 11% advantage to those wagering on Betfair, on which at this stage there has been just under AUD$11 million matched.

Which brings me to the main point, the one at the start of this message, which is that the long-held belief the bookmaker's markets are the most efficient. Well, if the bookmaker’s markets are substituted with Betfair's they are.

Betfair in the UK recently published the following:

"Betfair prices are actually extraordinarily accurate reflections of a horse's chance of winning a race.

And it's worth remembering that this is historical data and not a predictor of future events. It also looks at average weighted prices – which isn’t something you can know until after the event. And there's commission to take into account. The value of investments can go down as well as up and all that.

The full results are below. We’ve grouped all the horses into price ranges – averaging the expected win rate and the actual win rate:

Price Banding / Average EXPECTED win rate / Average ACTUAL win rate / Difference

1.01-2............64.38%..........4.84%.........0.46%
2.01-4............36.61%.........36.88%.........0.27%
4.01-6............20.27%.........20.66%.........0.39%
6.01-10..........12.77%..........12.60%........-0.17%
10.01-20..........6.93%............7.18%........0.25%
20.01-100.........2.64%............2.56%.......-0.08%
100.01-1000......0.30%............0.26%.......-0.04%

How did we work this out?

We grouped all the horses at various prices. As an example, if a horse was 1.5, then we said that the market was theoretically saying that it had a 66.6% chance of winning the race (100 divided by the price). This gave us the “Expected win rate”.

We then checked how often they actually did win – the “Actual win rate”.

In this example, if 1.5 shots won more than 66.6% of the time, then the “Difference” would be positive – meaning that you’d have made a profit backing all of them.

We looked at all the Win markets from UK racing, jumps and flat, from 1st January 2004. We excluded any race that hadn’t a traded volume of more than £50,000.

We took the weighted average price that each horse traded prior to the off (so not including in-play) – over 157,000 horses in total. These were then grouped into the bands you see above and averages taken."

So what this table clearly indicates is the actual win outcomes are very much in accordance with the expected win outcomes.

The favourite/longshot bias that may exist in other markets certainly do not exist in the Betfair markets.