John M. Gandar

Beating the Spread: Testing the Efficiency of the Gambling Market for National Football League Games

In this paper we test the efficiency of the gambling market for National Football League games. Two efficiency tests are conducted. The first test is derived from the finance literature on market efficiency, while the second test is based on a markets being efficient when the rate of return on any gambling strategy based on publicly available information approximates the bookmakers commission. While the first test is found to be too weak to establish conclusions about the efficiency of the NFL gambling market, the second test results, showing the existence of profitable betting opportunities, indicate that speculative inefficiencies exist in this market.

Informed Traders and Price Variations in the Betting Market for Professional Basketball Games

This paper examines betting line changes from the opening to the closing of the point spread betting market on National Basketball Association games for evidence of informed trader betting. We show that within-betting period line changes significantly improve the accuracy of betting lines as forecasts of game outcomes. We examine individual line change magnitudes and show that these are directly and proportionately related to biases in opening lines. Further, line changes are of sufficient magnitude to remove these biases by the close of betting. We interpret these results as evidence that informed traders are influential in this market. Copyright The American Finance Association 1998.

The home field advantage revisited: a search for the bias in other sports betting markets

Abstract Recent research describes a bias in the pricing of the home field advantage in the betting market on National Football League games with a national focus (Monday night and playoff games). Home teams, especially home team underdogs, win at a rate sufficient to reject both the unbiased forecast and absence of profit opportunities versions of market efficiency. This paper extends the examination of the pricing of the home field advantage, particularly in games with a national focus, to the point spread betting market on National Basketball Association games and the fixed odds betting market on Major League Baseball games. Contrary to the football results, we find little evidence of a mispricing of the home field advantage in either regular season or playoff games in both basketball and baseball. Further, betting on all home teams is never profitable in either league. Additionally, the paper examines the latest three football seasons and finds no mispricing in games with a national focus in this out-of-sample period. We conclude that these markets are, in general, efficient.

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.

Dividends, earnings volatility and information

It is generally accepted that a firms dividend policy can provide information about its future financial performance. Most studies link dividend policy with firm valuation; however, other signals involving dividend policy are also observed. The focus of this article is not to continue the examination of the return (valuation) information contained in dividend announcements, but rather to consider the information about risk that the announcements provide. We consider the ‘risk information hypothesis’, whereby management provides the market with new information about the risk of the firms earnings variability through their dividend policy. The results of our study provide evidence that positive changes in dividends are associated with positive future changes in mean real Earnings Per Share (EPS). Furthermore, a significant increase in EPS variance (risk) after a dividend change is observed for all dividend change classifications except for dividend omissions. The strongest signal of future variance shifts is with dividend increases.

Investor–fans? An examination of the performance of publicly traded English Premier League teams

This paper considers the game-related performance of the publicly traded teams in the English Premier League. It is found that the price behaviour of the publicly traded soccer team market to be very insensitive to game outcomes in terms of both returns and trading volume. It is believed that the results point to a new type of investor in professional sports – these investor fans do not trade on information that may affect cash flows but, rather, appear to obtain value from mere ownership.

A Reexamination of the Efficiency of the Betting Market on National Hockey League Games

A recent paper byWoodland andWoodland examines the efficiency of odds betting on professional hockey games, finding that actual returns on underdog bets consistently exceed expected returns and evidence of a reverse favorite-longshot bias. This article corrects the Woodland and Woodland calculation of bookmaker commissions for unchanged money lines. The authors’ revision substantially lowers the commission and thus is potentially important for tests of efficiency. The article also examines the impact of changes in money lines, which further reduce commissions but raise actual returns. The impact of these revisions on tests of efficiency is examined using the Woodland and Woodland sample. In general, the authors show that their revised no line change test statistic is a more stringent test of efficiency than either the Woodland andWoodland test statistic or any reasonable line change test statistic. However, the authors’ revised test statistics continue to find the inefficiency documented by Woodland and Woodland.

The Search for Informed Traders in the Totals Betting Market for National Basketball Association Games

A recent article on line changes in the point spread betting market for National Basketball Association games found evidence that trading incorporates information into price. This article examines a closely related but previously unexamined betting market—the betting market for the total points scored in a game. The authors find that closing totals lines are more accurate forecasts of total points scored than are opening totals lines. It is shown that line changes move betting lines in the correct direction and by the appropriate magnitude to eliminate biases in opening totals lines. Line changes in this betting market, like those in the point spread betting market, cause prices to more accurately reflect fundamental values.

Market rationality tests based on cross-equation restrictions

Abstract The information used by researchers in cross-equation tests of rational expectations may be a small subset of the information available to the market. Such tests produce consistent estimates, but have low power. We develop a mechanism for dealing with this problem and use the procedure to perform cross-equation tests on predictions from the football betting market. The tests fail to reject rationality. We provide evidence that market predictions from betting markets are not formed rationally. It appears, therefore, that cross-equation tests have low power even if the information sets used by the researcher and the market are approximately the same.

Don't lose sleep on it: a re-examination of the daylight savings time anomaly

A recent study finds evidence of a new financial market anomaly linking daylight savings time changes with market returns – spring and fall daylight savings time weekends are typically followed by large negative returns – and that these returns are significantly lower than regular weekend average returns. The present study finds that neither the consistency nor the magnitude and statistical significance claimed for this anomaly survives serious scrutiny.