Inefficient pricing from holdover bias in NFL point spread markets

Andy Fodor, Michael DiFilippo, Kevin Krieger and Justin Davis

Applied Financial Economics, 2013, vol. 23, issue 17, 1407-1418

Abstract: We identify inefficiency in the National Football League (NFL) gambling market indicative of sticky preferences by bettors. NFL teams that qualified for the playoffs in the prior season are favoured by too large a margin in the opening week of the following season. Bettors view these teams as superior though they win only 51.7% of opening week games against teams that failed to make the playoffs in the prior year. Against the point spread, teams that made the playoffs in the prior year win only 35.6% of opening week games played against teams that failed to make the playoffs in the prior year. Systematic betting based on this trend results in significant profitability over the 2004--2012 seasons with an average return over 22% per game. We posit this can be explained by gamblers' tendencies to cling to perceptions of teams formed from observation in the prior season. This confirms research in more traditional markets, suggesting investors can be slow to update asset valuations.

Date: 2013
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DOI: 10.1080/09603107.2013.829201

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