Manchester School, 2025
A common approach in the academic literature uses betting odds to back out an estimate of insider trading. You take the odds, apply a formula (based on a model due to Hyun Song Shin), and interpret the resulting number as the share of betting coming from insiders.
This paper asks a simple question: what does that number actually measure once you allow for the things that clearly exist in real betting markets, like bookmaker margins and differences in market competitiveness?
The answer is that, under more realistic assumptions, the Shin-style calculation has a tendency to attribute too much to insiders. In practice, it will often deliver “insider” estimates even in settings where there are no insiders at all. The reason is that the method ends up soaking up bookmaker pricing wedges and treating them as if they were driven by adverse selection.
There may be people with inside information but these measures don’t measure that reliably and instead reflect that some markets have higher costs or less competition.
Key research finding: Odds-based “insider share” estimates are not a clean measure of insider trading. In realistic settings, they largely measure the bookmaker’s profit margin.
Practical advice: It is very unlikely that there is a significant percentage of money using inside information placed on most sporting events.