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Do Gamblers Correctly Price Momentum In Nba Betting Markets?

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  • Jeremy Arkes

Abstract

There is little research on whether new information is correctly synthesized in prediction markets. Previous studies have found evidence consistent with, but have not proved, gambler misperceptions on the existence of momentum effects in the NBA. I use novel momentum measures that, unlike prior studies, incorporate the strengths of the opponent and the wins (or losses). With these measures, I test whether gamblers correctly synthesize information on momentum in the NBA. Contrary to previous studies, I find strong evidence for the existence of a momentum effect. Furthermore, gamblers incorporate momentum into their beliefs on the game outcomes. Gamblers, however, significantly overstate the importance of momentum. But, there is little evidence that the extent of this gambler misperception is large enough to generate market inefficiencies, or profit opportunity. Still, the gambler mis-pricing of the information has implications for how well new information is synthesized in other types of prediction markets.

Suggested Citation

  • Jeremy Arkes, 2011. "Do Gamblers Correctly Price Momentum In Nba Betting Markets?," Journal of Prediction Markets, University of Buckingham Press, vol. 5(1), pages 31-50.
    • Handle: RePEc:buc:jpredm:v:5:y:2011:i:1:p:31-50
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    Cited by:

    1. Ryan Rodenberg, 2013. "Employee Discipline And Basketball Referees: A Prediction Market Approach," Journal of Prediction Markets, University of Buckingham Press, vol. 7(2), pages 43-54.
    2. Jeremy Arkes, 2013. "Misses in “Hot Hand†Research," Journal of Sports Economics, , vol. 14(4), pages 401-410, August.
    3. Isabel Abinzano & Luis Muga & Rafael Santamaria, 2017. "Behavioral Biases Never Walk Alone," Journal of Sports Economics, , vol. 18(2), pages 99-125, February.
    4. Joshua B. Miller & Adam Sanjurjo, 2018. "Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers," Econometrica, Econometric Society, vol. 86(6), pages 2019-2047, November.
    5. Daniel F. Stone & Jeremy Arkes, 2018. "March Madness? Underreaction To Hot And Cold Hands In Ncaa Basketball," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1724-1747, July.
    6. Miller, Joshua Benjamin & Sanjurjo, Adam, 2018. "A Cold Shower for the Hot Hand Fallacy: Robust Evidence that Belief in the Hot Hand is Justified," OSF Preprints pj79r, Center for Open Science.
    7. Benjamin Waggoner & Daniel Wines & Brian P. Soebbing & Chad S. Seifried & Jean Michael Martinez, 2014. "“Hot Hand” in the National Basketball Association Point Spread Betting Market: A 34-Year Analysis," IJFS, MDPI, vol. 2(4), pages 1-12, November.
    8. Miller, Joshua Benjamin & Sanjurjo, Adam, 2018. "A Bridge from Monty Hall to the Hot Hand: Restricted Choice, Selection Bias, and Empirical Practice," OSF Preprints dmgtp, Center for Open Science.
    9. Joshua B. Miller & Adam Sanjurjo, 2015. "Surprised by the Gambler’s and Hot Hand Fallacies? A Truth in the Law of Small Numbers," Working Papers 552, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    10. Joshua B. Miller & Adam Sanjurjo, 2014. "A Cold Shower for the Hot Hand Fallacy," Working Papers 518, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    11. Miller, Joshua B. & Sanjurjo, Adam, 2021. "Is it a fallacy to believe in the hot hand in the NBA three-point contest?," European Economic Review, Elsevier, vol. 138(C).
    12. Joshua B. Miller & Adam Sanjurjo, 2015. "Is it a Fallacy to Believe in the Hot Hand in the NBA Three-Point Contest?," Working Papers 548, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    13. Arne Feddersen & Brad R. Humphreys & Brian P. Soebbing, 2018. "Sentiment Bias in National Basketball Association Betting," Journal of Sports Economics, , vol. 19(4), pages 455-472, May.

    More about this item

    JEL classification:

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

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