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The Relationship between Sportsbook Volume, Forecast Accuracy, and Market Efficiency: The NFL and NCAA Football

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  • Rodney Paul
  • Andrew P. Weinbach
  • Kenneth Small

Abstract

Using betting market volume data for the NFL and NCAA Football, we examine the role of betting volume as it relates to bettor biases, forecast accuracy, and volume-based betting market strategies. We find that betting volume has a statistically significant effect on the percentage bet on the favorite, but its impact is different between the two levels of football. Increased betting volume was shown to not have an impact on forecast accuracy in the sports. Simple betting simulations revealed that underdogs win more than implied by efficiency in low-volume NFL games, but other strategies did not reject market efficiency.

Suggested Citation

  • Rodney Paul & Andrew P. Weinbach & Kenneth Small, 2014. "The Relationship between Sportsbook Volume, Forecast Accuracy, and Market Efficiency: The NFL and NCAA Football," Journal of Prediction Markets, University of Buckingham Press, vol. 8(2), pages 29-42.
    • Handle: RePEc:buc:jpredm:v:8:y:2014:i:2:p:29-42
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    References listed on IDEAS

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    1. Rodney J. Paul & Andrew P. Weinbach, 2009. "Sportsbook Behavior in the NCAA Football Betting Market: Tests of the Traditional and Levitt Models of Sportsbook Behavior," Journal of Prediction Markets, University of Buckingham Press, vol. 3(2), pages 21-37, August.
    2. Sauer, Raymond D & Brajer, Vic & Ferris, Stephen P & Marr, M Wayne, 1988. "Hold Your Bets: Another Look at the Efficiency of the Gambling Market for National Football League Games: Comment," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 206-213, February.
    3. Matti Metsola, 2010. "Evidence on the Favorite-Longshot Bias as a Supply-Side Phenomenon," Journal of Prediction Markets, University of Buckingham Press, vol. 4(1), pages 59-77, May.
    4. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    5. Rodney J. Paul & Andrew P. Weinbach, 2007. "Does Sportsbook.com Set Pointspreads to Maximize Profits? Tests of the Levitt Model of Sportsbook Behavior," Journal of Prediction Markets, University of Buckingham Press, vol. 1(3), pages 209-218, December.
    6. Rodney Paul & Andrew Weinbach, 2011. "NFL bettor biases and price setting: further tests of the Levitt hypothesis of sportsbook behaviour," Applied Economics Letters, Taylor & Francis Journals, vol. 18(2), pages 193-197.
    7. Lyn D. Pankoff, 1968. "Market Efficiency and Football Betting," The Journal of Business, University of Chicago Press, vol. 41, pages 203-203.
    8. Steven D. Levitt, 2004. "Why are gambling markets organised so differently from financial markets?," Economic Journal, Royal Economic Society, vol. 114(495), pages 223-246, April.
    9. Brennan, Michael J. & Chordia, Tarun & Subrahmanyam, Avanidhar, 1998. "Alternative factor specifications, security characteristics, and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 49(3), pages 345-373, September.
    10. Zuber, Richard A & Gandar, John M & Bowers, Benny D, 1985. "Beating the Spread: Testing the Efficiency of the Gambling Market for National Football League Games," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 800-806, August.
    11. Rodney J Paul & Andrew Weinbach, 2012. "Wagering Preferences Of Nfl Bettors: Determinants Of Betting Volume," Journal of Prediction Markets, University of Buckingham Press, vol. 6(1), pages 42-55.
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    Cited by:

    1. Durand, Robert B. & Patterson, Fernando M. & Shank, Corey A., 2021. "Behavioral biases in the NFL gambling market: Overreaction to news and the recency bias," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    2. Jason P. Berkowitz & Craig A. Depken II & John M. Gandar, 2018. "The Conversion of Money Lines Into Win Probabilities," Journal of Sports Economics, , vol. 19(7), pages 990-1015, October.
    3. Corey A. Shank, 2019. "NFL betting market efficiency, divisional rivals, and profitable strategies," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 36(4), pages 567-580, September.
    4. Shank, Corey A., 2022. "Information asymmetry in the NFL gambling market: Inside information versus informed bettors," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).

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    More about this item

    Keywords

    Betting; NFL; Volume; Market Efficiency; Bettor Biases;
    All these keywords.

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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