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I’m fascinated by market efficiency. Ostensibly, outside of pure arbitrage, the only way to make money trading is if your analysis or your information flow is better than the analysis or information incorporated into the current market odds.

Here we will concentrate on information flow. In a financial merger or acquisition, announcement of the transaction will move the price of the firms involved. If there is a gap between the announcement and completion of the transaction, the risk that the final completion will not succeed will be incorporated into the price, which will again experience a bump at the point of completion or failure. Trading this “bump” is to “buy the rumour, sell the fact”.

To apply it to betting, let’s take trade rumours. By example, Kevin Love is a top 10 NBA player. Rumours suggest it is very close to certainty that he will be traded from the Minnesota Timberwolves to the Cleveland Cavaliers, however, the trade has not yet occurred.

That the Cavs will have a higher chance to win the NBA Championship if this trade goes ahead is fact. Therefore, once the successful trade is announced, the odds of the Cavs to win the Championship should drop slightly. If the trade is unsuccessful, the odds should move upwards. In fact, the only way the trade result could be announced without moving the odds would be if the market is strong form efficient (this means that non-public information is incorporated into the current level of the odds).

The odds graph for the Cavs to win the NBA is reproduced below.

Note: The first big odds dive was the result of LeBron James moving home to Cleveland from Miami.

Markets hold strong with Van Gaal insisting that he won’t add to the ManU squad (ManU to win the EPL).

The draw is very short for the 4th test between England and India with bad weather looming.

Outsiders win the US PGA Championship all the time but that hasn’t stopped Rory Mcllroy being twice as popular as anyone else.

Support at Rogers Cup for both in form Federer (left) and speculative bets on Ernest Gulbis (right). Maybe Gulbis is more of a trade.

(LeBron James)

Happy punting,

LevBet team