Prices of State Contingent Claims with Insider Traders, and the Favourite-Longshot Bias

Main finding

A bookmaker protecting against insiders sets odds that produce a favourite–longshot bias; the model underlies the Shin de-vig method.

Limitations

The 'insider share' interpretation of the fitted parameter has been questioned; the method can be used without accepting it.

Study details

Authors

Hyun Song Shin

Published

1992

Venue

The Economic Journal 102(411), 426–435

Status

Published

Evidence type

Peer-reviewed theory

Evidence strength

Moderate (our assessment of how much weight the finding can bear)

Sport

Horse racing (motivation)

Markets

Bookmaker fixed odds

Method

A pricing model in which a bookmaker sets odds while knowing that some bettors have inside information.

Sample

Not applicable (theory).

Replication

Not applicable.

Read the original

doi:10.2307/2234526 (opens in a new tab)

Our summary is an original paraphrase for education. Verification: Bibliographic record checked against publisher, index or author listings. Checked 2026-10-25.