Home / Analysis / Sports betting as a new asset class

Sports betting as a new asset class


Sports betting could become a new asset class, offering uncorrelated returns to a standard pension fund portfolio with potentially better returns than the average hedge fund, according to a UK study.

The study by two quant research managers, Lovjit Thukral and Pedro Vergel Eleuterio, both of Long Rock Capital in London, showed that a relatively simple horse-racing betting strategy could beat a hedge fund returns index as well as the S&P 500 between 2010 and 2016.

The strategy was to consistently ‘lay off’ (betting on the event not to occur) the four favourite horses with the lowest odds in each race.

  • The study followed earlier work by academics Gomber, Rohr and Schweickert in 2008 who wrote a paper discussing the microstructure of sports betting and how it can develop into an alternative asset class generating alternative alpha.

    Another study in the US, by Meers, Waters and Wortman in 2013, sought to do the same using American football.

    In the latest study, the authors say that sports betting can fit nicely within Modern Portfolio Theory because of the lack of correlation with markets.

    The strategy of betting against the favourites (which is similar to how most bookies make their money) outperformed the Credit Suisse Hedge Fund Index in five out of the six years and the S&P 500 in three out of six years, with a better Sharpe ratio.

    “Having only looked at one sport and one type of strategy, we are confident that this is only the tip of the iceberg in terms of the usage of sports to create alpha,” the paper says.

    The authors note that they assumed no liquidity issues and don’t take account of commissions and other “trading costs” of the betting system.

    Print Article

    Why taming the inflation tiger will be harder than the 1970s

    Inflation is making a latter day comeback, and a financial system “sanitized by 15 years of free money” is totally unprepared. It’s time, once again, for tough medicine. Inflation hasn’t been this high in 40 years, but investors have become convinced that central banks can still tamp it down it with relative ease – a…

    Lachlan Maddock | 27th May 2022 | More
    Bragg offers a super manifesto (from opposition)

    One of the Coalition’s few surviving  “super soldiers”, Andrew Bragg has called on his party to go further down the route of “flexibilising” super – if not abolishing it completely. Senator Andrew Bragg finds himself in a curious position following Labor’s election win. He’s one of the few super partisans to survive the teal clean…

    Lachlan Maddock | 27th May 2022 | More
    Appen left at the altar. Market heads lower. Good week continues for US markets.

    Appen left at the altar A bizarre blink-and-you-missed takeover approach came and seemingly went for one of the local market’s tech leaders Appen, which develops the datasets for machine learning and artificial intelligence. Canadian company Telus International sprang a $9.50 a share bid on the company, which said it would talk to Telus to try to…

    Drew Meredith | 27th May 2022 | More
    News and OneVue go live with brightday
    Alec Law | 11th Jan 2015 | More
    Perrignon off to HK with Credit Suisse
    Alec Law | 22nd Dec 2013 | More
    BlackRock ahead of consensus with bullish view
    Alec Law | 14th Jan 2017 | More
    Statewide seeds bespoke Apostle fund
    Lachlan Maddock | 23rd Mar 2022 | More
    UniSuper’s VC foray a sign of things to come
    Lachlan Maddock | 25th Mar 2022 | More
    HSBC talks re-open old NAB wound
    Lachlan Maddock | 9th Mar 2022 | More