Abstract
Prices play a key informational role in markets by revealing the private information of a diverse set of participants. But can professional traders accurately decipher these price signals? Can these professionals separate out the signal (the information on fundamentals) from the noise (erroneous beliefs, short-run inventory effects) in prices? We analyse 133 million soccer betting prices from 26 bookmakers over a 14-month period to answer this question. Using a simple new test designed for this setting, we find that 85% of bookmakers are able to extract signals from prices. However, the bookmakers which rely more heavily on market prices show less aptitude for this task. This leaves open the possibility that pricing errors may propagate through markets via the inefficient processing of price signals.
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