Racial discrimination in asset prices: Evidence from horse betting

In the presence of behavioral biases, prices can diverge from fundamentals, and the effects of racial/ethnic bias are evident in many financial and non-financial markets. We investigate the determinants and consequences of discrimination in parimutuel horse betting by assessing return differences across horses whose trainers have racially/ethnically distinctive surnames, which bettors may see as a proxy for quality (accurately or inaccurately) or a source of non-pecuniary returns (due to animus). Bets on horses with nonwhite-named trainers earn higher risk-adjusted returns, and these differences are especially pronounced among riskier bets, which receive lower average returns under the well-known “favorite–longshot” bias. Racial/ethnic return differences are stronger—overall and especially among longshots—for “win” than “place” and “show” bets, among horses with poor prior performance, and in low-stakes races with “fast” conditions. These results are consistent with the effects of discrimination being strongest among less-informed and less-sophisticated bettors.

SSRN version

Barnes, S., Stein, L.C.D., Forthcoming. Racial discrimination in asset prices: Evidence from horse betting. Financial Review.
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