Racial Discrimination in Asset Prices: Evidence From Horse Betting

ABSTRACT In the presence of behavioral biases, prices can diverge from fundamentals, and the effects of racial/ethnic bias are evident in many financial and nonfinancial 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 nonpecuniary returns (due to animus). Bets on horses with non‐White‐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.