The Influence of Market Ecology on Market Efficiency: Evidence From a Speculative Financial Market

This paper explores differences in market ecology in a speculative financial market, the horserace betting market, and examines the impact these variations have on the information which returns seeking bettors need to incorporate in their subjective probability estimates. Conditional logit models are employed to demonstrate that different types of data influence the outcome of races distinguished by the degree to which the information environment is benign/hostile to bettors. The results suggest that the degree to which bettors use appropriate information in assessing horses' winning probabilities is influenced by market ecology and that this in turn affects the degree of efficiency in different market segments.