Information Acquisition in Ostensibly Efficient Markets

I use UK betting exchange data on Wimbledon tennis matches to investigate the Grossman and Stiglitz (1980) paradox. Risk‐free arbitrage opportunities arise frequently during matches (as information arrives and asynchronously shifts prices), but seldom arise before matches (when there is little information to move prices). I find that on the few occasions that arbitrage opportunities do arise before matches, they last substantially longer than average. This suggests, in line with the paradox, that traders neglect to acquire information (carry out research or watch markets) if they believe that markets are already efficient. This neglect, in turn, makes markets inefficient.