Are Final Market Prices Sufficient for Information Aggregation? Evidence from Last-Minute Dynamics in Parimutuel Betting

Abstract: Most betting market models employ static frameworks that condition decisions on final odds. Using a unique dataset of interim odds from Japanese horse racing, this study examines the validity of such static analyses by asking whether there is a systematic relationship between expected returns and the trajectory of odds. We find that returns are negatively related to last-minute changes in odds, and that these late movements attenuate the favorite-longshot bias by weakening the correlation between final odds and returns. These patterns suggest that informed bettors place wagers at the final stage based on private signals, leaving surprises in final odds.