The effect of late money on betting market efficiency

This article is an analysis of the price movements in a speculative market at closing. Specifically, we look at 1644 US horse races and analyse the change in betting pool totals and their suggested probabilities to confirm that late wagers on average come from more informed bettors. Almost 40% of all wagering dollars enter betting pools in the last minute of wagering. This 'late' money is found to increase efficiency and itself is the best prediction of the true win, place and show probability of a horse. A clustered tobit regression shows that late increases in the betting share on a specific horse increase net returns.