Betting Market Efficiency in the Presence of Unfamiliar Shocks: The Case of Ghost Games during the Covid-19 Pandemic

Betting markets have been frequently used as a natural laboratory to test the efficient market hypothesis and to obtain insights especially for financial markets. We add to this literature in analyzing the velocity and accuracy in which market expectations adapt to an exogenous shock: the introduction of soccer ghost games during the Covid-19 pandemic. We find that betting odds do not properly reflect the effect of ghost games regarding changes in home advantage. Furthermore, we present evidence for a slow to non-existing adaption process with respect to new match results, indicating a lack of semi-strong efficiency. Based on these findings, we also identify very simple but highly profitable betting strategies which underline our rejection of the efficient market hypothesis.