Efficiency characteristics of a market for state contingent claims

This paper concludes that a market for state-contingent claims (UK horserac e betting) displays evidence of pervasive but heterogeneous forms of ineffi ciency, in significant contrast to earlier investigations. Using hitherto u navailable data, comparison of notional returns implicit in parallel sets o f bookmaker and parimutuel odds identifies inefficiency in terms of zones o f distinct but contrasting forms of cross-market returns differential. The inefficiency is rationalized in terms of both buyer and supplier behaviour; its durability is explained in terms of limited arbitrage opportunities.