Evidence of adverse selection from thoroughbred wagering

Previous research has shown the thoroughbred sales market to be affected by adverse selection. In the market, sellers who race as well as breed thorou ghbreds will choose to keep thoroughbreds when their estimated private valu es exceed expected sales prices. The presence of asymmetric information lea ds these sellers to sell their low-quality horses and keep their best for r acing. We extend the analysis by examining how betters use similar informat ion when wagering on thoroughbred races. We show, using a sample of two-yea r-old maiden races, that homebreds (those horses kept by their breeders for racing) are favored over otherwise similar nonhomebreds.