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Testing Market Efficiency: Evidence from the NFL Sports Betting Market

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  • Gray, Philip K
  • Gray, Stephen F

Abstract

This article examines the efficiency of the National Football League betting market. The standard ordinary least squares regression methodology is replaced by a probit model. This circumvents potential econometric problems, and allows the authors to implement more sophisticated betting strategies where bets are placed only when there is a relatively high probability of success. In-sample tests indicate that probit-based betting strategies generate statistically significant profits. Whereas the profitability of a number of these betting strategies is confirmed by out-of-sample testing, there is some inconsistency among the remaining out-of-sample predictions. The authors' results also suggest that widely documented inefficiencies in this market tend to dissipate over time. Copyright 1997 by American Finance Association.

Suggested Citation

  • Gray, Philip K & Gray, Stephen F, 1997. "Testing Market Efficiency: Evidence from the NFL Sports Betting Market," Journal of Finance, American Finance Association, vol. 52(4), pages 1725-1737, September.
    • Handle: RePEc:bla:jfinan:v:52:y:1997:i:4:p:1725-37
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    References listed on IDEAS

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    1. Brown, William O & Sauer, Raymond D, 1993. "Fundamentals or Noise? Evidence from the Professional Basketball Betting Market," Journal of Finance, American Finance Association, vol. 48(4), pages 1193-1209, September.
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    5. repec:bla:jfinan:v:43:y:1988:i:4:p:995-1008 is not listed on IDEAS
    6. Woodland, Linda M & Woodland, Bill M, 1994. "Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-279, March.
    7. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
    8. 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.
    9. Golec, Joseph & Tamarkin, Maurry, 1991. "The degree of inefficiency in the football betting market : Statistical tests," Journal of Financial Economics, Elsevier, vol. 30(2), pages 311-323, December.
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