Efficiency in the NFL betting market: modifying and consolidating research methods

Modifying and consolidating previous research methods to generate more reliable estimates, some fairly weak evidence is found of inefficiency in the NFL betting market resulting from a bias favouring home underdog (against away favourite) teams. In contrast to previous research, no evidence is found that ‘momentum strategies’ generate significant returns in this market.     

Betting market inefficiencies are short-lived in German professional football

In this article, we argue that potential inefficiencies on betting markets are more likely to exist at the very beginning of a season, when the available information on the teams’ playing strength is difficult to evaluate. This lack of reliable information should be particularly large in the case of recently promoted teams that have typically undergone major changes in the composition of their roster following their promotion. Without any information on the latter teams’ potential performance, they are particularly difficult to evaluate, which may eventually lead to inefficiencies and positive returns on investment in the betting market. We analyse odds from German first division Bundesliga soccer for the seasons from 2002/03 to 2015/16 to find betting market inefficiencies at the start of the season. As expected, betting on recently promoted team wins generates temporarily positive returns, especially for away games. These results suggest bookmakers to underestimate promoted teams’ ability to familiarize with the conditions in the new league, such as having to play in front of larger, often hostile crowds.     

Foreign aid and economic growth in Cameroon

A recent study of the fixed-odds betting market on baseball games, while finding that the betting market is generally efficient, also found evidence of an underbetting on underdog teams. This article examines the evidence for this new anomaly. It corrects Woodland and Woodland's estimates of the commission, subjective win probabilities and test statistics. The efficiency null hypothesis cannot be rejected for all of their tests when revised test statistics are calculated for their sample period (however, like them, it was found that slight underdogs are underbet). It is also shown that their bias is not simply a bias involving favourites and underdogs. Whether underdogs are playing at home or away also seems to matter in their sample period. As well a positive relationship between returns and subjective probabilities was found for underdogs and favourites, a relationship suggestive of a favourite-longshot bias rather than its reverse. It is concluded that there is insufficient evidence to claim that this bias is a ‘true market inefficiency’.     

Searching for the favourite-longshot bias down under: an examination of the New Zealand pari-mutuel betting market

This paper tests for the presence of the favourite-longshot bias in a new setting. This bias #150 the tendency for bettors to underbet favourites and overbet longshots #150 has been found in most studies of pari-mutuel and bookmaking betting markets in the USA, the UK and Australia. However, there is growing evidence that in at least some pari-mutuel betting markets there is no favourite-longshot bias. This paper examines the previously unexplored New Zealand pari-mutuel betting market on horse races for evidence of this bias. Utilizing a large sample of recent New Zealand thoroughbred horse races, it is found that while early, off-track bettors price this bias into odds, late (on-and off-track) bettors eliminate much of the bias by the close of betting. That is, the results reinforce the view that not all pari-mutuel betting markets are characterized by a favourite-longshot bias at the close of betting. Evidence is also found that late bettors in this market are smart bettors.     

The empirical effects of competition on third‐degree price discrimination in the presence of arbitrage

Since Borenstein ( 1985 ) and Holmes ( 1989 ), a theoretical and empirical literature has emerged that examines the effects of competition on third‐degree price discrimination. Since transaction costs involved in conducting arbitrage are typically unobserved, empirical investigations in this area have largely been restricted to markets such as for air travel where arbitrage is difficult, if not impossible. Using an entirely novel dataset, this paper documents the effect of competition on price discrimination in the presence of arbitrage in the Canadian online sports betting market where prices for Canadian teams are higher than in the world market. I observe how the prices of Canadian teams change in real time in response to the presence of arbitrageurs that establish Canadian sportsbooks’ observable marginal opportunity costs. I exploit the existence of government betting outlets not subject to arbitrage to obtain reduced form counterfactual estimates of the extent to which competition affects price discrimination in the presence of arbitrage. In this new empirical environment, I find results consistent with the airline literature: competition reduces overall price dispersion and markups, but dispersion and markups shrink more for those in the “strong” market than the “weak” market.     

To bet or not to bet: a reality check for tennis betting market efficiency

We present evidence that the tennis betting market appears to be much more efficient than suggested by previous studies. More specifically, we study the market efficiency by studying the forecasting performance of a diversified set of 40 betting rules in two ways: by searching for the existence of a return differential between betting rules and by analysing the profitability of betting rules. Even though individual tests provide evidence that, within our universe of betting rules, positive returns can be achieved, when data-snooping bias is taken into account, the evidence diminishes. Subsequently, we also find very little evidence of return differentials between betting rules. These results cast doubts on previous research as they suggest that when the potential detrimental effects of data-dreading are taken into account, betting markets in general might not, ultimately, be so inefficient.     

The Favourite-Longshot Bias and Market Efficiency in UK Football betting

It is shown that the individual fixed-odds betting market on UK football exhibits the same favourite-longshot bias as that found in horse-racing. The bias appears both in betting on results (home win, away win or draw) and in betting on specific scores, and there are certain trading rules which appear to be profitable. Poisson and Negative Binomial regressions are carried out to estimate the mean number of goals scored by a team in a match with given market odds for the various outcomes. Tables of odds for individual scores are derived and these appear to fit the actual outcomes far better than those of the bookmaker.     

DO GAMBLERS THINK THAT TEAMS TANK? EVIDENCE FROM THE NBA

A growing body of literature indicates that sports teams face incentives to lose games at the end of the season. This incentive arises from a league's entry draft policy. We use data from betting markets to confirm the existence of tanking, or the perception of tanking, in the National Basketball Association (NBA). Results from a Seemingly Unrelated Regression (SUR) model of point spreads and point differences in NBA games indicate that betting markets believe that tanking takes place in the NBA, even though the evidence that tanking actually exists is mixed. Other NBA policy changes also affect betting market outcomes. (JEL D0, L0)     

Is there an optimistic bias on betting markets?

Bettors are subject to an optimistic bias when betting on the team they support. This paper shows that this individual bias does not affect betting odds on British teams in association football (soccer), as it is often argued.     

Market efficiency and continuous information arrival: evidence from prediction markets

Two regularities in financial economics are that prices underreact to news events and that they display short term momentum. This article tests for the presence of these regularities in prediction markets offered by the betting exchange Betfair on the 2008 Ryder Cup Golf Competition. Betfair offered in play prediction markets on the individual match play pairings and on the Cup result, with trading being virtually continuous in all markets. Modelled probabilities of the Cup result were updated continuously using trades in the individual match play pairings. These probabilities were then compared with the probabilities of the Cup result implied by odds in that market. The odds in the market for the Cup result underreact to both good and bad news that is provided by changes in the odds in the markets for the individual pairings. Further, these modelled probabilities Granger cause changes in the probabilities of the Cup result implied by odds in the market on that outcome. In addition, economically and statistically significant evidence of momentum is found in the odds in the market on the Cup result.     

Market consumption and hidden consumption. A test for substitutability

Previous studies point to a generally efficient baseball betting market with no profitable betting strategies. However, failure to consider the time of year in which the bets are placed neglects differences in available information throughout the season. This analysis largely confirms the general efficiency of the major league baseball betting market by existing measures; however, incorporating the time of the year in which the bet is made generates persistent profitable betting strategies. The process by which information impacts returns is considered; increasing difficulties in determining the true favourite likely play the largest role, while assessing the exact favourite underdog relationship also has an impact.     

Globally evolutionarily stable portfolio rules

The paper examines a dynamic model of a financial market with endogenous asset prices determined by short-run equilibrium of supply and demand. Assets pay dividends that are partially consumed and partially reinvested. The traders use fixed-mix investment strategies (portfolio rules), distributing their wealth between assets in fixed proportions. Our main goal is to identify globally evolutionarily stable strategies, allowing an investor to “survive,” i.e., to accumulate in the long run a positive share of market wealth, regardless of the initial state of the market. It is shown that there is a unique portfolio rule with this property—an analogue of the famous Kelly rule of “betting your beliefs.” A game theoretic interpretation of this result is given.     

Game,set and match: the favourite-long shot bias in tennis betting exchanges

We test for the existence of Favourite-Longshot Bias (FLB) in tennis betting exchanges. Despite these being order-driven markets, with no direct participation from bookmakers, we have found very similar results to those obtained by Lahvi?ka (2014) for bookmakers’ betting markets: the bias is stronger in matches between lower-ranked players, in later round matches and in high profile tournaments. This suggests that bookmakers’ adjustments to respond to informed betting are not the main driver of FLB. The varying magnitude of the bias across different types of event in the main market also weakens arguments linking FLB to gamblers’ risk preferences, and suggests the need to consider the microstructure features of the market together with the cognitive biases highlighted in the behavioural finance literature.     

What drives intermediation costs? A case of tennis betting market

We demonstrate that there is a considerable variation in bookmaker margins across matches, time and bookmakers. Our results imply that using match, tournament and players’ characteristics explains the variations in margins hence, they can be helpful in managing intermediation cost in a market of state-contingent assets: fixed-odds betting markets. We also provide evidence that bookmakers protect themselves by increasing odds on the favourite player, thus attracting more bettors to the favourite player, while deterring bettors from betting on the underdog by reducing the odds. By that process, bookmakers are possibly sacrificing a portion of their margin.     

Information and efficiency: an empirical study of a fixed odds betting market

The efficiency of the fixed odds betting market for football in England is investigated. It is the efficiency of how market participants utilize available information that is tested. A model of bookmaker behaviour is presented in which the bookmaker maximizes their expected share of the total amount bet. It is found that an expected profit maximizing bookmaker could set market inefficient odds. Several empirical tests using the ordered probit model with data on prices and publicly available information are carried out. Evidence of market inefficiency is identified offering profitable betting opportunities.     

Information Efficiency in Betting Markets: a Survey

The concept of information efficiency is central to many studies of financial markets, and these studies have been well surveyed to date. A betting market is an example of a simple financial market, but one which offers researchers the added advantage that it is characterized by a well-defined termination point at which each asset (or bet) possesses a definite value. In consequence, it is much more convenient to use this particular context to formulate tests of information efficiency, and from these tests to draw useful conclusions. This paper surveys the rapidly growing literature which has to date addressed this issue of information efficiency in betting markets.     

The Reverse Favourite–longshot Bias and Market Efficiency in Major League Baseball: An Update

Racetrack and sports betting markets have been researched extensively with respect to the question of market efficiency. In contrast to the consistently observed favourite–longshot bias found in racetrack betting markets, it has been shown that gamblers in the market for Major League Baseball games reveal the opposite behaviour. This paper updates the previous study with ten years of additional data for the 1990–99 seasons. The strength of the reverse favourite–longshot bias is virtually identical to the original paper. The result suggests that, contrary to most reported inefficiencies in gambling markets, this bias appears to be permanent.     

Potential competition and coordination in a market-entry game

When there are too many potential competitors available to exploit a new market opportunity, the risk of multiple entry may discourage entry. This paper employs a contest to coordinate entry and compares the outcome with the mixed-strategy approach. Expected profit per firm decreases with potential competition and welfare eventually decreases with potential competition for many contest designs. The contest outcome is welfare superior to the mixed-strategy outcome when entry costs are high but the situation is reversed when entry costs are low. The contest model is consistent with certain empirical evidence on investment rivalry.     

Demand for parimutuel horse race wagering with special reference to telephone betting

Parimutuel horse race wagering (handle), measured in real terms, has been steadily declining for the past several decades. In an attempt to reverse this trend, a number of racetracks in the United States have instituted telephone betting systems which allow wagering from an ‘off-track’ location. The present study investigates the demand for parimutuel horse race wagering when a telephone betting system is implemented. Two demand equations are estimated for a racetrack, one for on-track (live race) handle and another for total (on-track plus telephone betting) handle. As expected, it is found that the telephone betting system has led to a decline in on-track wagering but surprisingly, it has also led to decline in total wagering, although not to the same extent as in on-track wagering. Thus, off-track wagering generated through the telephone betting system has not been sufficient to offset the loss in on-track handle. In addition to the effect of the telephone betting system, it is found that the takeout rate (price of wagering), the price of admissions, racing quality, racing days, and competition from professional sports and another racetrack in the market area are significant determinants of the demand for wagering. Demand is found to be elastic with respect to the takeout rate, inelastic with respect to the price of admissions and parking, and almost unitary elastic with respect to income.