Parimutuel versus fixed-odds betting: Evidence from a hybrid market

Betting markets on horse races have typically taken one of two forms: 1) a parimutuel pool, where prices are uncertain until the market is closed, or 2) a fixed-odds market, where prices are fixed at the time the bet is placed. I study a hybrid betting mar- ket where a pool is run side-by-side with a fixed-odds market, and the two are then combined to determine final pool prices. I find that the fixed-odds market is quicker to aggregate information, and produces comparatively efficient prices from the start of betting. Interim prices in the parimutuel pool are largely uninformative, but improve as betting progresses. The parimutuel pool in this hybrid market also serves two ad- ditional purposes. It allows bettors to avoid thin early trading, and also provides a mechanism for extracting information in late leftover quotes in the fixed-odds market.